Why you should have a plan for unused FSA funds

Planning for unused FSA funds

If you are in charge of the decision to offer a Flexible Spending Account (FSA) at your company, you should have a plan for unused FSA funds.

Doing so will give you the power to:

  • stay young forever
  • assuage angry employees
  • lower administrative fees
  • potentially reduce premiums

… and more.

Here are your options for managing employees’ unused FSA funds*.

What to do with unused FSA funds

Pay for the plan’s administration fees

There are costs associated with offering this account. You can get back a little somethin’ somethin’ and put it toward paying for the administrative fees associated with offering the account.

Reduce premiums next year

Another option is to reduce premiums for next year’s plan.

For instance, one option is:

Give your employees a certain dollar amount to put towards the cost of coverage. However, just make sure it’s done evenly and fairly across the board for all employees who participate in the plan.

Increase the annual coverage amount next year

Finally, you can bump up the annual coverage amount for next year’s plan.

How this might work: You can “seed” a certain amount towards participants’ accounts. Again, no picking favorites or special treatment. It has to be done evenly and fairly across the board for all participants.

Rules to keep in your back pocket

These suggestions are only for medical Flexible Spending Accounts (FSAs). Because of this, for Adoption Assistance FSAs or Dependent Care FSAs, once funds are lost, they are lost.

Avoiding unused FSA funds

It’s less than ideal for all parties when employees end up having to forfeit FSA money. Check out the top three options you can offer to manage FSA funds. (And which ones are most popular among employers).

*Please refer to your plan documentation for specifics on what can be done with forfeitures