Modifications to the “Use-or-Lose” Rule for FSAs

Modifications to the “Use-or-Lose” Rule for FSAs – PDF Version

 

Modification to the     “Use-or-Lose” Rule for FSAs

We are pleased to announce that late yesterday evening the U.S. Treasury and the IRS announced new guidance to the long standing “Use-it-or-Lose-It” Rule regarding Flexible Spending Accounts.  This new guidance has helped create a more favorable FSA option for employers and will potentially increase employee participation in those accounts.

The new guidance indicated that beginning in the 2014 plan year, employers that offer FSA programs will have the option of allowing participants to rollover up to $500 of unused funds at the end of the plan year.

In addition, effective immediately, employers that do not offer a grace period will have the option of allowing employees to rollover up to $500 of unused funds at the end of the current 2013 plan year.  Prior to the new guidance any leftover balance in an FSA was forfeited at the end of the plan year.

The key changes to the Flexible Spending Accounts are as follows:

  •  Effective in plan year 2014, employers that offer health FSAs will have the option of allowing participants to rollover up to $500 of unused funds at the end of the plan year;
  • Effective immediately, employers that offer health FSAs that do not include a grace period will have the option of allowing employees to rollover up to $500 of unused funds at the end of the current 2013 plan year;
  • The carryover option is an alternative to the grace period rule;  therefore, an employer must elect the grace period option (typically extends the plan year for up to an additional 2.5 months) OR the rollover option in their plan design.
  • Carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make to a health FSA ($2500 adjusted for inflation after 2012); and
  • To utilize the new carryover option, a plan offering a health FSA must be amended to set forth the carryover provision. The amendment must be adopted on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year.

Click here to review the complete IRS release of this notification (Notice 2013-71).

We will continue to provide you with updates and correspondence as we gather more information about this release.  In addition, we will be hosting two webinars to review any additional information and also how this new ruling will work operationally for your organization.  The webinar invite will follow later today. 
 
Webinar Dates:
Friday November 8th, 2013 12:00 P.M. -1:00 P.M CST
Monday November 11th, 2013 2:00P.M. – 3:00 P.M. CST