“Use-or-Lose” Rule Modified for Health FSAs

$500 Rollover Provides Greater Flexibility to Plan Participants

Yesterday, the Treasury and IRS issued a notice modifying the long-standing “use-or-lose” rule for health flexible spending arrangements (FSAs). To make health FSAs more consumer-friendly and provide added flexibility, the updated guidance permits employers to allow plan participants to rollover up to $500 of their unused health FSA balances remaining at the end of a plan year.

This action seems to directly reflect public comments received by the agencies in recent years; an overwhelming majority of feedback pointed to the difficulty for employees of predicting future needs for medical expenditures, the need to make FSAs accessible to employees of all income levels, and the desire to minimize incentives for unnecessary spending at the end of the year.

For nearly 30 years, employees eligible for health FSAs have been subject to the use-or-lose rule, meaning that any account balances remaining unused at the end of the year are forfeited. Under current law, plan sponsors have the option of allowing employees a grace period permitting them to use amounts remaining unused at the end of a year to pay qualified FSA expenses incurred for up to two and a half months following year-end.

As with all new legislative activity, TASC’s Governmental Affairs team is closely examining the new rollover policy and its impact on our Clients and their employees. In fact, we are currently in the process of analyzing how the policy will work with a Client’s optional “grace period” and/or “run-out period” to determine what – if any – adjustments need to be made operationally in order to best serve our customers…and then will update our guidelines, procedures and administrative materials accordingly.

More information to follow; be on the look-out for additional communication from TASC (including here at the Capital Connection) in the coming weeks, in an effort to ensure peace of mind for TASC Providers, Clients and Participants!

Click here to view the document (in its entirety): IRS Notice 2013-71

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