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FSA administrators expect significant ‘rollover’ adoption -- next year
last updated 3/31/2014
Update: Carryover FSA Funds Limit HSA Contributions
On Feb, 24, 2014, the IRS issued a memorandum addressing whether flexible spending account (FSA) funds carried over into the following year would prevent participants from contributing to a health savings account (HSA) in the carryover year.
an analysis by law firm Hill, Chesson & Woody:
"For those employers who have already struggled with the questions presented by having both a high-deductible health plan (HDHP) with an HSA and a health FSA with a carryover feature, the guidance [of
IRS Chief Counsel Memo No. 201413005] is welcome. ... Even if the employee (or spouse) does not make an election for the health FSA in Year 2, anticipating the need to make HSA contributions, if the health FSA has money leftover from Year 1 the employee may be ineligible to contribute to the HSA for all of Year 2."
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.
WageWorks Inc. has advised HR to communicate one of the following messages to employees, based on the employer's decision about the carryover provision:
The rule change applies to health FSAs and to limit-scope FSAs for dental and vision expenses. However, it does not apply to dependent-care FSAs, 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.
FSA Administrators Predict Significant ‘Rollover’ Adoption for 2014 Plan Year
Following the Treasury Department's Oct. 31 modification of the FSA “use-it-or-lose-it” provision,
Alegeus Technologies, a provider of administrative platforms for tax-advantaged benefit accounts, conducted a survey of more than 200 FSA administrators. The results point to significant employer rollover adoption for the 2014 plan year and modest gains in both FSA enrollment and account contributions.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related External Analysis:
'Use It or Lose It?' A Closer Look at the Recent IRS Guidance on Flexible Spending Accounts, Crowell & Moring LLP, November 2013
Related SHRM Articles:
FSA Use-It-or-Lose-It Rule Modified,
SHRM Online Benefits, November 2013
Year-End Tips to Spend Down FSAs,
SHRM Online Benefits, January 2012
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