To amend the Internal Revenue Code of 1986 to provide special disposition rules for unused benefits in flexible spending arrangements of individuals for calendar year 2020.

To amend the Internal Revenue Code of 1986 to provide special disposition rules for unused benefits in flexible spending arrangements of individuals for calendar year 2020. 1. Special disposition rules for unused benefits in flexible spending arrangements of individuals in plan year 2020 (a) FSAs must allow distribution or rollover in 2020 For purposes of sections 106, 125, and 129 of the Internal Revenue Code of 1986, a flexible spending arrangement must allow a qualified 2020 distribution or rollover. (b) Taxes applied to certain distributions For purposes of sections 125(a) and 129(a) of such Code, such sections shall not apply to any benefit distributed from a flexible spending arrangement for a use other than the qualifying benefit for which such arrangement was established. (c) Special rule for disposition of unused benefits For purposes of such Code, a plan shall not fail to be treated as a cafeteria plan, health flexible spending arrangement, or dependent care flexible spending arrangement merely because such arrangement provides for a qualified 2020 distribution or rollover. (d) Qualified 2020 distribution or rollover For purposes of this section, the term qualified 2020 distribution or rollover (e) Application This section shall only apply to distributions or rollovers in plan year 2020. 2. Change in election amount (a) In general A plan or other arrangement that otherwise satisfies all applicable requirements of sections 106 and 125 of the Internal Revenue Code of 1986 (including any rules or regulations thereunder) shall not fail to be treated as a cafeteria plan or health flexible spending arrangement merely because such plan or arrangement allows an employee to make, with respect to the remaining portion of a period of coverage within the applicable period— (1) an election modifying the amount of such employee’s contributions to such a health flexible spending arrangement (without regard to any change in status), or (2) an election modifying the amount of such employee’s elective paid time off. Any election as modified under paragraph (1) shall not exceed the limitation applicable under section 125(i) for the taxable year. (b) One-Time application Paragraphs (1) and (2) of subsection (a) shall each apply to only 1 election change described in such paragraph with respect to an employee (in addition to any other election changes during a period of coverage permitted under the plan or arrangement without regard to this section). (c) Applicable period For purposes of this section, the term applicable period 3. Extension of grace periods, etc (a) In general A plan or other arrangement that otherwise satisfies all applicable requirements of sections 106, 125, or 129 of the Internal Revenue Code (including any rules or regulations thereunder) shall not fail to be treated as a cafeteria plan, health flexible spending arrangement, or dependent care flexible spending arrangement (whichever is applicable) merely because such plan or arrangement extends the grace period for the plan year ending in 2020 to 12 months after the end of such plan year, with respect to unused benefits or contributions remaining in a health flexible spending arrangement or a dependent care flexible spending arrangement. (b) Post-Termination reimbursements from health FSAs A plan or other arrangement that otherwise satisfies all applicable requirements of sections 106 and 125 of the Internal Revenue Code of 1986 (including any rules or regulations thereunder) shall not fail to be treated as a cafeteria plan or health flexible spending arrangement merely because such plan or arrangement allows (under rules similar to the rules applicable to dependent care flexible spending arrangements) an employee who ceases participation in the plan during calendar year 2020 to continue to receive reimbursements from unused benefits or contributions through the end of the plan year (including any grace period, taking into account any modification of a grace period permitted under subsection (a)). (c) Definitions Any term used in this section which is also used in section 106, 125, or 129 of the Internal Revenue Code of 1986 or the rules or regulations thereunder shall have the same meaning as when used in such section or rules or regulations.

Summary: This bill requires flexible spending arrangements established for 2020 to provide for the rollover of unused benefits or contributions to 2021. It also permits plan participants to modify their election amount and extends the grace period for the 2020 plan year to 12 months after the end of such plan year.