Change to FSA “Use It Or Lose It” Provision

Yesterday, the Department of Treasury announced a major policy change that will impact Flexible Spending Account (FSA) plans.  In response to years of requests from administrators, employers, and FSA participants, the Treasury has modified the “use it or lose it” provision to allow for a limited rollover of FSA funds.

Details are as follows:

  • Effective for the 2014 plan year, employers will have the option to allow FSA plan participants to roll over up to $500 of unused funds at the end of the plan year.
  • Effective immediately, employers with an FSA plan that does not include a grace period will have the option to allow current FSA plan participants to roll over up to $500 of unused funds at the end of the 2013 plan year.

The new guidance, as issued by the IRS, can be found here.

This is a big change and should impact 2014 enrollment into FSAs.  It should also encourage employers and employees who have been discouraged by this provision to become more comfortable with their participation and pre-tax estimates.

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