More Employers Adopt an FSA Carryover Option

Providing a carryover option for flexible spending accounts (FSAs) drives up enrollment

By Stephen Miller, CEBS May 6, 2015
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In 2015, 60 percent of U.S. employers that offer employees health care flexible spending accounts (FSAs) stated that they opted to also provide a carryover option for employee contributions, up from 49 percent a year ago and more than double the number from 2013, according to a joint survey by WageWorks, an administrator of FSA and other tax-advantaged benefit programs, and credit card firm Visa, a provider of FSA debit cards.

At the same time, the number of employers offering FSAs that instead incorporate a grace period feature has fallen from 57 percent in 2013 down to 32 percent in 2014 and to just 23 percent this year.

Two FSA Extension Options

Since changes to the rules for FSAs were introduced by the Treasury Department in 2013, there are two options for FSA extensions that employers can adopt:

  • Carryover. If an FSA plan has the carryover feature, participants can roll over up to $500 of unused FSA dollars to the next year but will forfeit any excess over $500 at year-end.
  • Grace period. An optional grace period gives employees an additional two-and-a-half months to incur new expenses using prior-year FSA funds. At the end of the grace period, all unspent funds must be forfeited.

Plans can offer either the carryover feature or a grace period, but not both, or they can offer neither.

Employers who opted for the carryover option estimated that FSA enrollments among their employees increased by 8 percent this year, twice the 4 percent increase they saw in 2014, the survey showed.

The two top reasons employers gave for why they believe carryover FSAs provide greater benefits to employees were:

  1. Reduced risk of losing money at the end of the year.
  2. Ease of use/understanding.

“Offering the carryover option addresses the No. 1 deterrent to employee FSA enrollment: fear of losing unused funds,” WageWorks CEO Joe Jackson told SHRM Online, adding, “We have seen FSA participation rates increase as employers adopt the carryover option and educate employees about its benefits, including a lower risk of losing contributed dollars.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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