On October
31, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued
a notice modifying the longstanding “use-or-lose” rule for health flexible
spending arrangements (FSAs). To make
health FSAs “more consumer-friendly and provide added flexibility,” the updated
guidance permits employers to allow plan participants to carry over up to $500
of their unused health FSA balances remaining at the end of a plan year. According to an IRS “Fact Sheet” accompanying
the notice, some plan sponsors may be eligible to take advantage of the option
to adopt a carryover provision as early as plan year 2013.
Currently, plan
sponsors have the option of allowing employees a grace period that allows them
to use amounts remaining unused at the end of a year to pay qualified FSA
expenses incurred for up to two and a half months following year-end. Under this new change, an employer, at its
option, is permitted to amend its § 125 cafeteria plan document to provide for
the carryover to the immediately following plan year of up to $500 of any
amount remaining unused as of the end of the plan year in a health FSA. Furthermore, the carryover of up to $500 does
not count against or otherwise affect the indexed $2,500 salary reduction limit
applicable to each plan year.
The existing
option for plan sponsors to allow employees a grace period after the end of the
plan year remains in place. However, a
health FSA cannot have both a carryover and a grace period: it can have
one or the other or neither.
No comments:
Post a Comment