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Treasury Modifies the “Use-it-or-lose it” rule for Health Flexible Spending Arrangement

On October 31st, the Department of Treasury issued a notice modifying the “use-it-or-lose-it” rule for health flexible spending arrangements (FSAs). At the plan sponsor’s option, employees participating in the FSA will be allowed to carry over up to $500 of unused amounts remaining at the end of the year, instead of forfeiting the unused amounts.

Here are some of the highlights:
  • Permits § 125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year.
  • This carryover of up to $500 has no impact on the maximum amount of salary reduction contributions that the participant is permitted to make. Employees can still elect up to $2,500 (indexed for inflation) for a new plan year even if they rollover up to $500 from the previous plan year.
  • Effective for 2014 plan year, Plan Sponsors now have the choice of either allowing employees a carryover or allowing them a grace period of up to two and a half months (though employers are not required to allow either).  However, a health FSA cannot have both a carryover and a grace period.
  • Effective immediately, employers that offer a health FSA plan that does not include a grace period will have the option of amending their plan and allowing employees to have the $500 carryover of unused funds at the end of the current 2013 plan year. Participants must be informed of the carryover provision.
Click here for the press release and link for the new IRS FSA rollover guidance:

MGIS will have the updated plan document requirements in the upcoming weeks. If you would like to take advantage of the new carryover provision and amend your plan document, please contact your account executive at MGIS for assistance.

This is a great time to move ahead with FSA benefit plans. Please contact me directly to discuss specific plan and administration needs.

Best regards,

Noelle Lundberg
CDH- Senior Sales Executive
Medical Group Insurance Services, Inc.
the mgis companies. Insurance Physicians Expert