The Soapbox and Toolbox for New York State's Nonprofits

November 6, 2013

Rules Changed Flexible Spending Arrangements

Treasury Modifies "Use-or-Lose" Rule for Healthcare Flexible Spending Arrangements (FSAs)

 

Good Afternoon!

We here at "From the HIP" believe it's important to keep NYCON members & everyone
enrolled in our employee benefit programs well informed on a wide variety of topics -- including
updates on new rules & regulations.  

 
As you may have already heard, there are some
immediate changes that have occurred that
affect all Flexible Spending Accounts (FSAs).
 

 

On October 31, 2013, the Department of Treasury and IRS announced a modification of the Use It or Lose It Rule for Health Care Flexible Spending Accounts.  

Your nonprofit will have two options:

  • Grace Period (Currently Available)
    This means an employer elects to offer an extension of the current plan by 75 days. This allows
    a participant additional access to their account funding for this period of time after the last day
    of the plan, of which the employee can expend their entire remaining balance.
  • If you elect to offer your employees a Grace Period, you cannotcombine that with the new "Rollover Option" below.
     

  • Rollover Rule (NEW) - an employer can elect to rollover any unused funds from one plan year
    to the next, up to a maximum of $500.   

Read the modification notice 

Read the fact sheet 

 

Additional Notes from NYCON: 

  • You can make modifications to your 2013 plan to institute a Rollover, but if you currently offer
    a Grace Period, NYCON would be required to amend your plan document and summary plan
    description (SPD). NYCON's fee to make modifications to your original plan is $125  
  • If a Rollover is adopted, all employees participating must be allowed the same level of
    carryover as all other participating employees.  
  • The Rollover maximum is $500. This does not, however, count against or otherwise impact
    the employee's ability to elect the IRS maximum of $2,500 (if your agency allows it).
    An employee could potentially possess in their account the Rollover funds ($500) + New
    Annual Election ($2,500) for a Total New Plan Year Account Balance of $3,000.  
  • You cannot offer a "cash out" option of any portion of unused funds, nor can the funds be converted
    to any other benefit type (DCFSA, HRA or HSA).  
  • Any Rollover funds can be utilized at any point within the plan to which the funds were carried over.  
  • Any unused amount in excess of the allowable $500 maximum for Rollover is still forfeited at the end date in the plan.  
  • Any unused amount in a terminated employees account at the end of the 30 day window of opportunity
    to remit expenditures, incurred between the plan start date and the termination date, is a forfeiture.
    Unless the employee elects to contribute to the plan (on a post-tax basis) under COBRA.

As always, feel free to call or email us with any questions. Please contact Candace A. Ellis-Shumpis, Accountant, Group Employee Benefits at (800) 515-5012 ext. 130 or contact her via email at cshumpis@nycon.org. 

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