As Rules Change, Remind FSA Users to Mind Their Balances

News Updates

As the end of the year approaches, HR should remind employees with flexible spending accounts (FSAs) to determine whether they need to spend some or all of their unused funds before the end of the year (or extra grace period) to avoid forfeiting them.

Adding to the annual year-end confusion: In October 2013 the U.S. Treasury Department announced a major change to the long-standing use-or-lose rule for health FSAs. Plans may now allow participants to carry over $500 annually. Employers must amend their plans to eliminate the current two-and-a-half-month grace period, if they provide it. (To learn more, see the SHRM Online report "FSA Use-It-or-Lose-It Rule Modified.")

Because of the late timing of the rule change, which caught employers and benefits professionals by surprise, some companies will not implement the $500 carryover provision this year, and some may choose not to implement it at all. But others are adopting the carryover provision into their plans so leftover funds from the 2013 plan year will remain available in 2014.

FSA administrator WageWorks Inc. has advised HR to communicate one of the following messages to employees, based on the employer's decision about the carryover provision:

  • If the business adopted the carryover for the 2013 plan year, up to $500 of unused funds at the end of this year will still be available in 2014. FSA users should try to spend down any balances above $500.
     
  • If the company has not adopted the carryover for 2013, FSA users should attempt to spend their entire remaining balance before the end of the plan year, which may include a grace period lasting into 2014.
     
  • If the employer adopts the carryover for the 2014 plan year, workers may want to consider enrolling in an FSA or adjusting their contribution level, as $500 of unused funds will carry over into the 2015 year.

The rule change does not apply to dependent-care FSAs or limited-scope health FSAs that are restricted to dental and vision expenses, so participants in those plans must still spend their remaining funds before the end of the plan year or the end of the grace period, depending on their plan's details.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

To read the original article on shrm.org, please click here.

Tags: