What are Flexible Benefit Plans

Flexible Benefit Plans are often thought of as Flexible Spending Accounts or FSAs. They include Healthcare FSAs, Dependent Care FSAs, and transportation benefits (transit and parking), that employees use to pay for eligible healthcare, daycare, elder care and transportation expenses through payroll redirection. Both employers and employees benefit from the tax savings offered by these plans because salaries are reduced by the amount re-directed to fund the account.

FSAs are subject to a "use it or lose it" rule requiring forfeiture of unused amounts at the end of the year. Funds are not portable if the employee leaves the employer sponsoring the plan.

Employees must make their plan year elections prior to the start date of the FSA and cannot change their elections during the year unless they experience a qualifying event like marriage, divorce, the birth of a child, etc.

Participation in one type of FSA (Healthcare) does not affect participation in another type of FSA (Dependent Care), but funds cannot be transferred from one FSA to another.

The Healthcare FSA and Dependent Care FSA are governed by Section 125 of the IRS Code and are often referred to as Section 125 Cafeteria Plans. The transportation benefits are governed by Section 132 of the IRS Code.