What some would consider a long overdue change to FSA plans came down from the US Department of Treasury yesterday. The FSA “use-it-or-lose-it” provision, which has required employees to spend pre-tax dollars set aside for certain medical expenses by the end of the year or forfeit those funds, was put to rest yesterday. Employers that offer an FSA now have the option to allow their employees to roll over up to $500 of unused funds to the following plan year. The only plans that cannot take advantage of this rule change are those who allow a grace period, as the Treasury Department specifically noted they cannot be used at the same time.
FSAs have been available for over 25 years to allow employees to contribute pre-tax dollars to pay for certain out-of-pocket healthcare expenses not covered by the individual’s health plan. FSA detractors have long criticized the “use-it-or-lose-it” provision citing it as a strong reason employees do not take advantage of the plans. Since future medical expenses can be very hard for employees to predict, many employees who utilized FSAs found themselves purchasing unnecessary supplies at the year-end deadline in order to not “waste” the funds. The Treasury department yielded over 1,000 comments recently which sparked the rule change.
The Affordable Care Act dropped the maximum contribution to an FSA to $2,500 in 2013. Treasury officials said the $500 will not reduce this $2,500 annual maximum.
Employer Alert: In order to utilize the new carryover option, a cafeteria plan offering an FSA must be amended to set forth the carryover provision. Any employers in need of assistance amending their cafeteria plan documents or would like further guidance can fill out a request form to be contacted by an Innovative Consultant here.
Written by Ryan Kastner
Employee Benefits Consultant
Innovative Benefit Planning, LLC
