Can employers extend the FSA run-out deadline due to COVID-19?

Amid the uncertainty consumers and businesses now face as a result of COVID-19, many consumer-directed healthcare (CDH) administrators are actively looking for ways to make lives easier for their employers and participants. To that end, Alegeus has fielded a number of compliance-related questions from administrator clients, such as the possibility of extending run-out deadlines or relaxing substantiation requirements, as participants navigate this unprecedented global event.

Below, Jason Lacey, our legal/compliance expert weighs in on the possibility of extending run-out deadlines for prior-year plans, as participants may have difficulty tracking down healthcare providers to obtain required receipt documentation.

Is it permissible for employers to extend the FSA reimbursement submission deadline?

Yes, it is permissible for employers to extend the deadline for submission of claim documentation. There is no legal rule regarding the length of the runout period for an FSA. A runout period of 90 days or 3 months is common, but nothing prohibits having a longer period. The only specific requirement is that the expense must have been incurred during the plan year. If that is satisfied, the regulations say that “actual reimbursement of covered medical care expenses may be made after the applicable period of coverage.” If you do decide to extend the runout period, ensure you do so uniformly.

If we decide to uniformly extend the FSA submission deadline, what will be required to make it happen?

Technically, employers are required to make an amendment to the cafeteria plan document, since the runout period is defined in the plan document. However, given the unique circumstances of COVID-19, it may not be necessary to have a neatly packaged and formal amendment to the plan document. Instead, it would be sufficient to modify the relevant plan term and communicate it to your employees. This might be as simple as preparing an email or memo to covered individuals describing the updated provision.

Should we have any concerns about extending the deadline?

The timing of submission of claim documentation doesn’t seem to be an area of significant concern for the IRS, so any reasonable steps put in place to provide your employees with relief should be ok. It would be a much bigger concern if plans began accepting claim documentation for reimbursement without sufficient substantiation. It’s better to provide flexibility on the timing of submission if that allows for holding firm on substantiation requirements. Bottom line: If the main concern is giving your employees flexibility to wait to submit claim documentation until substantiation is available, you can accommodate them. It’s unlikely you’ll see a waiver or other relief from the substantiation requirement itself.

Where can I get my COVID-related regulatory/compliance questions answered?

Watch a replay of our recent webinar, COVID-19: Ask the Regulatory/Compliance Expert, featuring attorney Jason Lacey. We cover a number of topics related to COVID-19 and consumer-directed healthcare – from eligibility of COVID-19 expenses to the possibility of extending runout deadlines.