The IRS announced yesterday that it is relaxing the rules around the use-it-or-lose-it “feature” of healthcare flexible spending accounts (FSAs). Plan sponsors will now be able to all plan members to rollover up to $500 of unspent FSA dollars into the following year’s FSA. Currently, any money not used during the plan year would be forfeited, though most plans do have a grace period that allows until 3/15 of the following year to zero out balances before forfeiture. Starting with the 2013 calendar year, plan sponsors can now choose whether to:
- Implement the new $500 rollover rule OR
- Maintain the grace period rule that extends the deadline for using a year’s FSA funds until 3/15 of the following year OR
It is up to the employer (plan sponsor) to set the rules for the given plan. Since 2013 is almost over and most plans already allow the grace period rule, I suspect few plans will be changed for the 2013 plan year to allow the new rule. It is possible that plans may be updated to the new $500 rollover rule for 2014. If you’re going through your Annual Benefits Enrollment, plan to use a healthcare FSA, and have not received any direction form your employer as to whether or not they plan to implement the new rule, please contact your HR representative and ask.
Full text for the rule change can be found in Notice 2013 -71 on the IRS Website.