The New FSA Use or Lose Ruling

The US Treasury Department modified its FSA “use-it-or-lose-it” provision to allow rollover of FSA funds. Learn more how this can benefit your company.

Feb 19, 2014

The New FSA Use or Lose RulingWe are excited to share an announcement from the US Treasury/IRS that will make FSAs more attractive to employees. The “use it or lose it” rule has been a deterrent for many employees who fear they may forfeit unused funds at the end of a plan year or grace period. That is the case no more. On October 31, 2013 the US Treasury Department modified its FSA “use-it-or-lose-it” provision to allow rollover of FSA funds.

Overview of the New FSA Use or Lose Ruling

The new rule permits a rollover of unused FSA funds, up to $500, into the following year’s plan; this may be the most beneficial FSA development for employers and employees since the FSA law’s inception in 1984. FSA enrollments have remained flat year over year with just 20-22% of eligible employees enrolling. And for those employees that do enroll, the ability to rollover unused FSA funds—up to $500 into the next plan year—should help alleviate forfeiture concerns and lead to higher participation and contributions.

Benefits to Employers

Employers will see additional FICA savings if more employees enroll. Employees who were hesitant in the past may now want to take advantage of this underused tax benefit since they will be better able to estimate their out of pocket healthcare expenses without the worry of forfeiture. The new FSA Rollover rule will also eliminate unnecessary or capricious spending that sometimes occurs in an employee’s effort to not forfeit funds at year end.

Take advantage of the new FSA Rollover rule to increase your 2014 enrollment!

We want to enable more employees to use tax free funds to cover their out-of-pocket healthcare costs. BPAS will assist clients in educating employees by providing customizable communication for employees on how the FSA Rollover works should you choose to adopt this provision.

NOTE:  If your plans currently permit for the grace period (the period of time during which a participant can incur expenses against the previous year’s contributions) you will need to remove the grace period in order to permit for this $500.00 roll over provision. 

Some employers adopting this new roll over option are extending or re-opening enrollment periods to allow extra time for their employees to enroll in the FSA, or to increase election amounts.  Even if your plan year has already started, it is not too late to change this plan year from a grace period plan to a roll over plan!

Have questions or need assistance with the new FSA Use or Lose Ruling?  Please contact BPAS. We look forward to assisting clients to maximize the benefit of this new rule to employees.