IRS Notice 2020-29: Relief for Section 125 Cafeteria Plans and Flexible Spending Accounts

Posted May 20th, 2020


By now, employers are probably used to seeing regular updates and rule changes issued by various federal agencies including the Department of Labor and Internal Revenue Service that are in some way related to COVID-19.  Additional guidance issued on May 12, 2020 from the IRS provides relief to employees who are seeking to change cafeteria plan and FSA elections in 2020 and who may not otherwise qualify under the existing election change criteria.


Sponsors of Section 125 cafeteria plans generally include several election change events in the plan document.  These events, designated by the applicable Treasury regulations, allow employees and participants to modify their original cafeteria plan elections and act as exceptions to the general rule that elections are irrevocable during the coverage period.  This can be a source of frustration for employees who wish to make election changes mid-year and who do not satisfy the criteria established by the employer (criteria which is in turn based on the applicable law).



In recognition of the COVID-19 outbreak and the need for increased flexibility for plan participants, the IRS authorized participants who make salary reduction contributions to, with respect to employer-sponsored health coverage, make the following election changes on a prospective basis:

  • An employee who originally declined coverage may now elect to enroll
  • An employee who is currently enrolled in one coverage option may elect to enroll in a different option
  • An employee who is currently enrolled may revoke their election provided they attest in writing that they are enrolled, or will immediately be enrolled, in health coverage not sponsored by the employer

Additionally, employees may revoke, modify, or make new elections to participate in Health FSA and DCAP benefits on a prospective basis.


Other relief in the Notice relates to unused amounts in Health FSAs and DCAPs as of the end of grace periods or plan years ending in 2020.  These unused amounts may be used to pay or reimburse expenses incurred through December 31, 2020 (the expenses must be reimbursable from the respective account; leftover amounts in Health FSAs may not be used to pay dependent care expenses, for example).


Documentation & Recordkeeping

Employers who choose to offer this additional flexibility must confirm that their existing Section 125 plan document allows these changes; given that this relief is new, it is very likely that plan amendments would be necessary.  Employers who currently offer pre-tax contributions to benefits but do not have a Section 125 plan in place should see this as an opportunity to implement this plan document as soon as possible.  Plan amendments for the 2020 plan year must be adopted by December 31, 2020 and can be retroactively effective back to January 1, 2020 and employees are notified of these changes.


The Notice includes sample language for the written affidavit required where an employer permits an employee to revoke their medical coverage election due to having other health coverage not sponsored by the employer.


Employers are expressly not required to provide “unlimited election changes” and may use their discretion to determine the extent to which election changes are permitted.  Existing nondiscrimination rules continue to apply, and employers are allowed to consider the potential for adverse selection that may result where an employee is permitted this degree of flexibility mid-year to make election changes.


For more information, please see the full Notice available at:  For assistance with understanding this Notice and the potential impact (if any) on your organization or clients, please contact us at


This publication reflects Contribution Health’s interpretation of existing law and regulation at the time of publication and may not reflect subsequent developments.  This information is provided for informational purposes and is not intended to constitute legal or tax advice.

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