As part of COVID-19 relief, the Consolidated Appropriations Act, 2021 (CAA) permitted plan sponsors to immediately implement certain mid-year changes to their cafeteria plans during the 2020 and/or 2021 plan years without first having to adopt plan amendments. Employers that implemented such relief are required to adopt certain retroactive plan amendments by December 31, 2022.
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The CAA allowed plan sponsors to immediately implement several cafeteria plan changes with respect to health and dependent care Flexible Spending Arrangements (FSAs) and health coverage elections, including either allowing carryover of unused amounts from the 2020 and 2021 plan years, respectively, or extending the grace period for incurring claims for plan years ending in 2020 and 2021 through December 31 st of the following year. We summarized the permissible changes in our January 5, 2021 insight, “Temporary Changes to Health and Dependent Care FSAs.”
Typically, under the proposed cafeteria plan regulations, an amendment to a cafeteria plan is only permitted to be effective for periods after the later of the adoption date or the effective date of the amendment. However, IRS Notice 2021-15 provides with respect to the CAA changes that plan sponsors can retroactively amend their plans for those changes if the amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective and the plan or arrangement is operated consistently with the terms of the amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted.
The chart below shows the deadlines for both calendar-year plans and non-calendar-year plans.
| Year Change Became Effective | Amendment Adoption Deadline for Calendar-Year Plans | Amendment Adoption Deadline for Non-Calendar Year Plans |
| 2020 | December 31, 2021 | December 31, 2022 |
| 2021 | December 31, 2022 | December 31, 2023 |
The proposed cafeteria plan amendments state that the failure to properly amend a cafeteria plan can result in the plan not being a cafeteria plan and an employee's election between taxable and nontaxable benefits resulting in gross income taxable to the employee. Accordingly, the consequences for failing to timely amend a cafeteria plan could be severe.
The December 31, 2022 deadline has implications for both calendar-year and non-calendar-year plans.
Employers with calendar-year cafeteria plans should confirm whether they have been amended to reflect 2021 plan year changes implemented pursuant to the CAA.
Employers with non-calendar year plans should confirm whether they have been amended to reflect any 2020 plan year changes implemented pursuant to the CAA. Non-calendar year sponsors also may wish to amend their plans now for the changes implemented in 2021 to assure timely compliance with the 2023 deadline.
