New bill offers new options to employers, improving benefits of FSA
Many employees took advantage of health and dependent care flexible spending accounts (FSAs) in 2020, only to see those funds languish unused as day cares closed and routine medical visits were put off to protect family members.
Fortunately, after taking it down to the last few days of the year, Congress and the president signed The Consolidated Appropriations Act.
The Act includes new rules that give employers a couple of options to help their team members use that money as they intended – to take care of themselves and their families.
That is welcome news, indeed but—as HR and benefits pros know all too well—new rules do not implement themselves.
And when, as in this case, the changes are voluntary, you have a further challenge—convincing leadership that the time and effort required to implement the changes are a good investment.
As we explore below, we think there’s a good argument that they are.
Please note, this is not legal advice, and the relief actions are complex, making it likely that the IRS will, at some point, issue interpretive guidance. As always, we strongly encourage employers and plan sponsors to consult their legal or benefits counsel for conclusive guidance.
First, let’s look at the rule’s specific relief for FSA account holders.
Under existing IRS regulations, any pre-tax FSA funds that were not used by year-end were forfeited, unless an employer’s plan specifically allowed one of two options.
The “carryover rule” allowed participants to roll over up to $550 of the balance to pay for expenses incurred anytime in the new year. Any FSA funds above that amount were forfeited.
Or employers could allow FSA funds still unspent at the end of December to be used for expenses incurred within the first 2-1/2 months of the new year under the “grace period rule.” And there was a further twist: dependent care FSAs were eligible for the grace period rule but not the carryover rule. Healthcare FSA plans could allow one or the other.
Congress, untypically, simplified part of the FSA account rules book with the new Act. HR plan administrators no longer need to keep track of whether funds are going to dependent care or health care when deciding which plan applies.
Under the new law, both health care and dependent care FSAs may apply either the carryover rule or the grace period rule for unused amounts as of the end of 2020.
In more good news, the carryover rule’s $550 cap is eliminated—any amount remaining in the FSA as of December 31 can be used for dependent or health care expenses incurred in 2021.
Plans that chose instead to apply the grace period rule can give employees access to any remaining funds for expenses incurred any time in 2021, not just the first 2-1/2 months of the year.
Either way, the full unused 2020 balance can be used to pay claims incurred any time during the new year (and the rules stay in effect for two years, so 2021 balances will be available to employees through the end of 2022.
But that’s not all
The less-good news? The changes don’t affect how FSAs and HSAs interact. You’ll need to think carefully about how any changes you make might impact employees’ eligibility to participate in a health savings account in 2021 and 2022.
And, of course, while choices are great for your employees, they result in more work for you. You’ll need to put together a clear communication plan to help employees make and adjust their choices, potentially multiple times throughout the year.
Yes, you read that right.
Under the new Act, the old set-it-and-forget-it aspect of FSAs is gone. Until now, an employee’s FSA election was irrevocable for the plan year, unless they experienced a change in status event as permitted by cafeteria plan rules.
As explained by Leigh C. Riley and Amy C. Ciepluch of Foley & Lardner LLP, in a National Law Review Article, “Under the new law, for plan years ending in 2021, an employer may permit an employee to make a prospective change to their health care or dependent care FSA elections at any time for any reason (our emphasis).
And many employees are likely to make changes.
Consider, for example, that employees who have access to carryover balances or a longer grace period will have FSA money they didn’t account for when making their 2021 elections.
With so much ongoing uncertainty around returning to workplaces and re-opening schools and daycares, employees might reduce or eliminate the FSA elections they made during 2020’s open enrollment. Employees (and you) have no way of knowing if or when they might make changes.
There’s much more to the Act, of course, and we’ll help you stay in compliance with those changes (and other regulatory changes) throughout the year.
Taking your FSA to the next level
Whether you work directly with your benefits administration partner or use a broker, the buck stops with you and your HR/Benefits team.
That means you are the ones who are responsible for asking, and being prepared to answer, tough questions.
When it comes to health reimbursement accounts, unless your team has the bandwidth to handle yet another complex chore, that means:
- selecting and managing a partner who will commit to keeping your organization in compliance with changing FSA laws;
- ensuring all documentation is kept up to date and filed on time;
- and making sure your employees stay informed about deadlines, options, and how their choices can impact other aspects of their benefits package.
That requires proven technology including an easy-to-use online self-service portal for employees, comprehensive decision support data and analysis tools for your team.
And the flexibility to customize reimbursement schedules, funding options, and communications campaigns, along with rock-solid integration between insurance carriers, service providers and other suppliers.
To help maximize the flexibility and value of your FSA program in the face of new challenges and new laws, your benefits administration partner must bring a dedicated team with deep expertise and an understanding of your unique needs.
benefitexpress provides complete FSA administration services, supporting health care spending accounts, dependent care spending accounts and transit/parking reimbursement. We provide employees with a debit card for ease of use and handle all communications and reporting tasks.
Our proven FSA administration solution handles everything from employee elections to managing and resolving all claims. FSA administration includes online self-service for FSA participants, dedicated support and account management, secure connectivity between systems and carriers, proven data management technology, and support for multiple funding options and reimbursement cycles.
benefitsexpress commits to:
- Deliver exceptional on-demand client support by providing error-free claims processing
- Run daily claim reports identifying how many claims have been processed and by which administrator. At least 10% of manual claims are reviewed weekly for accuracy.
- Provide information and assistance to other departments as needed to ensure accurate plan processing
- Track and report on all customer and participant inquiries and the time it takes to resolve the issue.
- Respond to internal and external queries within 24 hours
- And many more industry-leading SLAs
Is your current benefits administration outsourcing partner meeting your evolving needs? Take fifteen minutes to learn why making a switch to benefitexpress can take your strategy to the next level in 2021 and beyond.