The Department of Treasury issued Notice 2013-71 announcing a significant change to how flexible spending accounts (FSAs) are administered by modifying the “use-or-lose” provision to allow a limited rollover of Medical FSA funds. $500 in FSA Rollover Now Permitted in Notice 2013-71, outlined by the following:
- Employers now have the option to allow participants to roll over up to $500 of unused funds at the end of the plan year to the next plan year.
- The rollover amount of $500 does not impact the maximum election for the following plan year. (e.g. If you have a maximum election limit of $2,500 and a maximum rollover of $500, a participant could have access to up to $3,000 for the next plan year.)
- Employers have the ability to set a lower rollover amount if desired. However, if a plan chooses to adopt the rollover, it must make the same carryover limit available to all eligible plan participants.
- Plans which allow for a Grace Period are not permitted to also adopt the rollover provision.
- The plan is not permitted to allow unused amounts to be cashed out or converted to another benefit. Rollover funds can only be used to pay for qualifying medical expenses.
- To utilize this new rollover provision, the Medical FSA must be amended. The amendment must be adopted on or before the last day of the plan year from which amounts may be rolled over. If adopted, FSA rollover funds will become available to participants following the end of the runout period for the plan. (e.g. The current plan year ends Dec. 31, 2013 with a runout date of Mar. 31, 2014. The employer amends the plan prior to Dec. 31, 2013 and notifies participants of the change. The runout ends on Mar. 31, 2014. Rollover funds become available to eligible participants in April 2014.)
Benefit Resource will continue to evaluate this new development and provide more details in upcoming weeks. If you are an existing client, please contact your assigned Client Operations Specialist to discuss this new option. If you interested in learning more or to discuss plan options with Benefit Resource, please contact info@BenefitResource.com.
