The IRS revised the use-it-or-lose-it rule for health flexible spending accounts to allow employers to amend their plans to allow participants to carry over up to $500 of unused contributions to the next plan year. For a summary of the new rules, click here. BAS is ready to administer FSAs that take advantage of the new carryover option.
Employees may contribute up to $2,500 to a health flexible spending account each year, and contributions must be used to pay eligible medical expenses. Amounts not used at the end of the plan year must be forfeited. The IRS relaxed the forfeiture requirement by allowing plans to implement a grace period of an additional 2-1/2 months into the next plan year for participants to incur eligible claims. This grace period is in addition to any run out period, which is the time period during which a participant may submit claims incurred in the prior plan year.
The IRS has relaxed the forfeiture rule even further by permitting plans to allow a carryover of up to $500 of unused funds to be used in the subsequent plan year. See our Special Alert by clicking here. A FSA may provide for the carryover or the grace period to incur claims, but not both.
BAS will be able to administer employer’s health FSAs that implement the new carryover. Employers who use the BennyCard will also be able to take advantage of the carryover opportunity. Employers who wish to amend their plans to take advantage of the new carryover opportunity should do so before the end of 2013. If a plan has a grace period, the documents must be amended to first eliminate the grace period and then add the carryover.
It is important to note that the carryover amount will not be determined at the end of the plan year. Plans must wait until the run out period for submitting claims has expired. Only at that time will the carryover amount be set for the plan year.
BAS is ready to administer FSAs with the carryover, and will provide more information at a later date. If you have questions, please contact your account manager.
