Remind Workers to Spend FSA Dollars Before They Expire March 15

Employers that extended their 2023 flexible spending account (FSA) deadline have just a few more days to remind their employees to use their funds.

Although FSAs have a use-it-or-lose-it clause, meaning that any account balances left at the end of the year are usually forfeited, some employers offer a grace period that allows employees extra time in the new year to use the prior year’s FSA funds. The IRS allows employers to permit a grace period of up to two and a half months.

For most FSAs—those with a Dec. 31 deadline—the grace period ends March 15. But that may differ depending on employers’ plan year.

“The FSA grace period is important for employers because it gives employees an extra opportunity to use tax-free funds to maximize the health and wellness of themselves and their family and to avoid forfeitures. [FSAs] can increase satisfaction with benefits and contribute to re-enrollment,” said Keri Kaiser, chief revenue officer at Health-E Commerce, a New York City-based health and wellness online retailer.

The grace period is not uncommon: According to a survey by Visa, 37 percent of FSA users have a grace period deadline. For workers who have a March 15 grace period deadline, any funds not spent in the account after this date will be forfeited.

HR teams at companies that do offer the grace period would be wise to use the next several days to remind employees of the approaching FSA deadline and nudge them to use any remaining funds, experts said.

Employers’ communication about the upcoming FSA deadline—which could feature both broad and personal messages—should include telling employees to check their FSA balances and spend any remaining funds, then directing them to a searchable eligibility list of items that can be purchased with an FSA, Kaiser said.

“It’s important to educate employees about how to use FSA funds,” Kaiser said. “FSAs can be used for a wide variety of clinical services—including preventive exams, doctor visits, surgical procedures, dental care and vision care—in addition to many items that employees use every day, like over-the-counter medications and pain relief products, menstrual care products, baby health products, and products to manage chronic conditions like diabetes.” 

Employers have a vested interest “in making sure that their employees understand the benefits they have available to them and are using them,” Sara Taylor, senior director of employee savings accounts at consulting firm WTW, told SHRM Online in December. “It’s part of their overall total rewards strategy.”

Employees who don’t use their funds are missing the opportunity to leverage their benefits, Taylor said.

It’s not a small loss, either: According to figures from the Employee Benefit Research Institute, roughly 40 percent of workers forfeited at least part of their FSA contributions in the past few years, with the average loss ranging between $339 and $408 annually.

Employees often forget to use their funds or confuse their accounts with health savings accounts, which do not have the same use-it-or-lose-it rule.