Here are a list of some important questions pertaining to the recent IRS modification of the "use it or lose it" rule. Please contact your Account Executive team for further guidance on this important change for Flexible Spending Account (FSA) plans.
Q: Can we have the 2 ½ month extension (Grace Period) and the $500 rollover?
A: No, employers will need to decide between those 2 options.
Q: Which is better for my employees; the 2 ½ month extension (Grace Period) or the $500 rollover?
A: If you have the 2 ½ month extension you have 2 ½ months to spend all the money left from the previous year. If you have the $500 rollover then you have all year to spend the rollover amount. This will vary person to person as to which one is better for them.
Q: How do I know how much money my employees leave at the end of the year so I can decide if I want to have our company adopt the $500 rollover?
A: You can view an Account Balance report on the employer portal and see how much money your employees have left at the end of the plan year to help guide your decision making.
Q: As an employer; will this mean there could be less money coming back to us at the end of the year because there were less funds forfeited?
Q: Can FSA plans that currently have a Grace Period be amended to allow the rollover provision instead?
A: Yes. If a plan has provided for a grace period and is being amended to add a rollover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. The ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints.
Q: Will this increase participation in the FSA?
A: Most likely this will increase participation because employees will not be afraid of the "use it or lose it" rule. This will mean a tax savings for your employees and you as the employer as well.
Q: Can Employers amend plan documents to allow this rollover feature?
A: Yes. Accordingly, an employer, at its option, is permitted to amend its § 125 cafeteria plan document to provide for the rollover to the immediately following plan year of up to $500 of any amount remaining unused as of the end of the plan year in a health FSA.
Q: Will HRCTS be updating our documents if we adopt the $500 rollover?
A: Yes, your documents will be updated if you do adopt the rollover.
Q: When will educational materials for our employees regarding the change be available?
A: HRCTS has updated FSA enrollment materials available here for Employers who decided to adopt this feature. We have also provided you with an employer notice you can customize and send to your employees if you’d like to advise them of the change should you decide to adopt the rollover feature.
Q: Do you have some general information on the ruling you can provide to us?
A: Please refer to our notice regarding the IRS modification as well as our announcement regarding FSA enrollment. You may also view the details of the ruling in the Department of Treasury Notice 2013-71.
Q: Does this change affect the 90 day run out for the FSA?
Q: Is this change for the healthcare and/or dependent care flexible spending accounts?
A: This is only for the healthcare FSA.
Q: Does the $500 rollover apply to the Limited Purpose FSA?
Q: Can an employee rescind their rollover if they are signing up for a HSA and cannot have the FSA with the rollover in their new year if they are changing to a HSA upon their plan renewal?
A: Yes they can. If they do not do that they cannot set up the HSA.
Q: Can employer contributions rollover to the new year or just employee contributions?
A: The guidance does reference that remaining unused amounts can carry over to the new year. It does not specify employer or employee amounts. However, the remaining available balance does include both employee and employer contributions.
Q: How do we notify you if we want to adopt this change?
A: Please email your Account Executive to let them know if you’d to adopt this for your plan.
Q: Do we need to do a new application for our plan if we make this change?
A: No. Employers will not need to complete a new application for this change.
Q: When do we have to decide if we want to adopt this change?
A: A plan may be amended to adopt the carryover provision as long as the rollover provision is adopted prior to the end of the plan year ending in 2013 or 2014.
Q: Can we adopt this change now for our current plan year if we do not have the 2 ½ month extension?
Q: Will you be notifying my employees of this change?
A: Employers would be responsible to communicate this change to their employees as well as provide the updated Summary Plan Description to participants once provided by HRCTS.
Q: Is there a fee associated with this change?
A: No, there are no additional fees.
Q: Will this change affect the accounting of our plans?
A: This is a question that we are still looking to clarify. We are working with our software vendor currently as they are updating the system to accommodate the change. Once we clarify how the rollover will be reflected in the system we will be able to provide more information as to how the rollover will show on reports and if it will affect the accounting of the plan if at all.
Q: Can an employee elect the full $2,500 election if they are rolling over funds to the new plan year?
A: Yes, the employee can elect the full $2,500 giving them a balance of up to $3,000 in the new FSA plan year.
Q: Would rollover amounts be available day one of the new plan year or after the run-out period?
A: We believe the solution with our software vendor will allow the funds to be available day one of the new plan year. We believe that if there are claims coming in for the previous plan year during the run out that the system will look back to the old plan year to be able to pay the claim.
Q: Can the rollover amounts be given back to the participant as taxable income instead of rolling it over?
A: No, A § 125 cafeteria plan is not permitted to allow unused amounts relating to a health FSA to be cashed out or converted to any other taxable or nontaxable benefit. Unused amounts relating to a health FSA may be used only to pay or reimburse certain § 213(d) medical expenses (excluding health insurance, long-term care services, or insurance.
Q: Can an Employer choose to only allow a lesser amount than $500 to be rolled over?
A: Yes, the Employer can elect to only allow an amount less than $500 to be rolled over to the next plan year.
Q: If an employee elects the full $2,500 upon renewal and rolls over $500, would the full $3,000 be available once the rollover funds are rolled over?
A: Yes, the Uniform Coverage Rule still applies.
Q: Can an employee rollover the money to the next plan year if they do not elect a FSA account for the next plan year?
A: Yes, an employee can rollover up to $500 to the new plan year even if they’re not enrolling for any additional salary reductions in the new plan year.