The IRS revised the use-it-or-lose-it component of health flexible spending account plans to allow for the carryover of up to $500 of unused FSA amounts into the next plan year. The carryover can be implemented immediately with respect to unused amounts from the 2013 plan year.
The carryover is available only for health FSA plans that do not offer a grace period for incurring claims. Employers may, but do not have to, allow for a carryover. Employers may set their own dollar threshold for carry over, so long as the amount does not exceed $500.
Implementing the carryover does not impact the maximum amount a participant may contribute to the health FSA for the plan year ($2,500, indexed for inflation). An amount carried over is available for use during the entire subsequent plan year.
Important considerations:
- A health FSA Plan must be amended to allow for the carryover.
- A 2013 health FSA Plan without a grace period can allow for the carryover immediately, but must be amended in writing by the end of the 2014 plan year.
- A health FSA Plan with a grace period (and all health FSA Plans plans going forward) that want to implement the carryover must be amended to remove the grace period and add the carryover by the last day of the plan year from which amounts may be carried over.
- A health FSA Plan with a grace period must first be amended to eliminate the grace period and then be amended to add the carryover.
- Participants must be informed of the carryover.
- The employer must select a maximum amount to be carried over, not to exceed $500.
- The actual amount carried over is determined at the end of the plan's runout period (after all claims are submitted for the prior plan year).
- Participants may still contribute up to the maximum permitted amount to the health FSA ($2,500, adjusted for inflation).
- The carried over amount is available to be used for unreimbursed eligible medical expenses incurred during the entire plan year.
- A health FSA Plan can allow for a grace period or carryover, but not both.
- Unused health FSA amounts (including the carryover) are still forfeited upon termination of employment (unless coverage is continued under COBRA).
- A carried over amount may be available in the subsequent plan year even if the employee does not elect to make FSA salary reduction contributions for that subsequent plan year.
Adding a carryover feature to a health FSA will make the plan more desirable for employees and will likely increase health FSA participation. BAS will be ready to support the new carryover feature for the upcoming plan year. BAS is actively evaluating programming requirements and will provide further guidance about processes and client support in the next few weeks.
If you are a current client of BAS, you may contact your account managers to discuss these new developments. If you are not a FSA client of BAS, you may contact our sales team at 1.800.945.5513, menu option #3 or Sales@BASusa.com to learn about our FSA and other online enrollment and administration services.
