“My child’s day care closed – can I stop my dependent care FSA contributions?” This is probably a common question your employees are asking, as day cares and other child care providers are closing or stopping child care due to the COVID-19 pandemic. Depending on what your plan document says, the answer may very well be “yes.”
The IRS rules that govern dependent care FSAs require an employee’s pre-tax dependent care FSA contribution election to be irrevocable except in the case of a “change event.” A significant change in child care costs is one such “change event” that would allow an employee to change his or her dependent care FSA contributions mid-year. For example, an employee whose child is now at home because the child’s day care closed has experienced a significant change in costs and could decrease his or her dependent care FSA contributions, or revoke them all together. Conversely, this change event would also allow an employee to increase his or her dependent care FSA contributions when the day care reopens.
A few things to keep in mind as you evaluate employees’ requests to change their dependent care FSA contributions:
- Check the language in your dependent care FSA plan document. Your plan document must explicitly permit an election change for a significant change in cost. If it doesn’t, you can prospectively amend your plan to add the change event.
- Be sure to follow your plan’s rules regarding deadlines for employees to notify you of a change event and any procedures for requesting an election change. If you want to provide more flexibility for this situation than what your plan currently provides, you can prospectively amend your plan to reflect new rules or procedures.
- A change event due to a significant change in child care costs does not allow an employee to get a refund of any dependent care FSA contributions already credited to his or her dependent care account.
We’re here to help! Please contact any member of the Employee Benefits and Executive Compensation Practice Group if you have questions.