“This article published recently in The New York Times caught my attention because – with the advent of the rollover for FSA election dollars – the big question is “Why wouldn’t someone open a FSA and withhold at least $500?” That’s the question we ask at every open enrollment for the FSA today! Once an employee experiences the advantages of pre-tax payroll deduction, most continue it every year.
We see many of our employer groups electing to use the rollover option and eliminate the 2 ½ month extension. When employees elect payroll redirection, it is a win-win. Not only does the employee have the advantage when paying for health care costs, but the employer reduces their gross payroll – which affects their FICA and FUTA payments and worker’s comp premium.
We have many groups who offer a HDHP plan as well as a traditional plan. In this situation, groups can amend their plan document to allow a limited purpose/post-deductible FSA. Or, for those employers offering a single solution HDHP, simply add a limited purpose FSA so the employees can use those dollars for dental and vision and conserve the HSA dollars – which are triple tax advantaged – for later, or to walk into retirement with.” – Sterling EVP of Business Development, Chris Bettner
Rule Changes Increase Flexibility in Pretax Health Care Accounts
By Ann Carrns, The New York Times
As open enrollment season approaches for those with workplace health benefits, employees may want to take a fresh look at health care flexible spending accounts, if their employers offer them, because the rules for the accounts have changed.
Flexible spending accounts, or F.S.A.s, can help save money by letting people use pretax dollars to pay for costs a health plan doesn’t cover. That might include dental care, fertility treatments or equipment like blood pressure monitors. About 14 million families participate in health F.S.A.s, the federal government estimates.
While roughly 85 percent of big employers offer health care F.S.A.s, fewer than a quarter of eligible employees use them, according to 2013 data from the benefits consultant Mercer. One deterrent was the “use it or lose it” rule: If you set aside part of your salary in an F.S.A. but didn’t spend it, you would forfeit it at the end of the year. Even though many employers allow a two-and-a-half-month grace period for workers to submit claims, many employees remained cautious.
That’s changing, however. Late last year, the Treasury relaxed the rules and gave employers the option of letting workers carry over unused F.S.A. balances of up to $500 into the next year. Some employers made the change right away, but adoption was limited because the rule was announced after open enrollment was already underway at many workplaces. More employers are expected to adopt the carry-over for 2015, which means their workers will be made aware of it this fall. “Every indication is that most are choosing to offer the rollover opportunity,” said Robert Natt, executive chairman of Alegeus Technologies, which provides payment systems for employers and benefits administrators that offer various tax-favored accounts.
Just how many will in fact make the switch, however, remains to be seen. Steve Wojcik, vice president for public policy at the National Business Group on Health, which represents large employers, said that of 60 members responding to an internal poll, more than a third said they would adopt the change for 2015, and roughly a quarter more said they were considering it.
At PrimePay, a payroll services and human resources consultant, participation has increased by 17 percent at clients that have already made the switch, said Steve Jackson, the company’s senior vice president for strategic development.
“I honestly think it will make people more comfortable about putting money into F.S.A.s,” said Bruce Elliott, manager of compensation and benefits for the Society of Human Resource Managers.
One caveat: More companies are offering high-deductible health insurance plans, which are often paired with tax-advantaged health savings accounts, or H.S.A.s, to help pay for costs the plans don’t cover. If you have an H.S.A., you can’t also have an F.S.A., said Roy Ramthun, a health benefits consultant — unless the flexible spending account is limited to certain categories, like vision or dental costs.
Here are some questions about F.S.A.s:
- Does my employer have to offer the carry-over option?
No. It’s optional. Employers may choose to allow a grace period instead (but they can’t offer both a carry-over and a grace period). Employers also can set a cap on the carry-over amount below $500, if they choose. Check with your human resources department for details.
- How much income can I set aside in an F.S.A.?
The maximum annual contribution is $2,500, adjusted for inflation; employers can set a lower cap, if they choose. (The I.R.S. hasn’t announced the 2015 limit, but it’s likely to be $2,500 or slightly higher, Mr. Natt said.) Minimum contributions vary by employer. The federal government, which recently announced it would adopt the carry-over option for employees starting in 2015, also lowered the minimum contribution to $100 from $250, to encourage more federal workers to use the F.S.A. benefit.
- How should I decide how much to contribute to my F.S.A.?
If you know you’ll have a big expense, you may want to set aside the maximum amount allowed. If a child needs braces, for instance, you could spend $2,500 fairly quickly. If you’re unsure, you could stick with $500, or whatever carry-over your employer allows, since you won’t risk losing access to the funds. You can also try using an online contribution calculator like the one at FSAstore.com, a website that sells F.S.A.-eligible items.
- If I carry over $500, can I still contribute the annual maximum?
Yes. The carry-over amount is in addition to the maximum contribution amount set by your employer. So if you carry over $500, and the maximum contribution is $2,500, you’ll have $3,000 available in your account.