| NEW YORK
NEW YORK Nov 11 The U.S. Treasury has removed
the "use-it-or-lose it" restriction of flexible spending
accounts, but it is not clear whether the change will encourage
more workers to take advantage of this way to stash away money
tax-free to pay for healthcare expenses.
Right now, less than a quarter of U.S. workers have FSAs,
according to Mercer, a leading benefits consultant. A major
reason is that they run the risk of forfeiting the money they
set aside unless they spend it in the same calendar year.
But in late October, the Treasury Department announced a new
$500 rollover option that companies can adopt voluntarily.
Employers are eager to offer rollover plans because leftover
FSA money has been a sore point with employees for years, says
Steve Jackson, senior vice president of third-party benefits
Overall, some 14 million workers participate in FSA plans.
Employees at big companies typically forfeit $60 per person in
their FSA each year, says Mercer consultant Chris Renz. At
smaller companies, like the ones on PrimePay's roster, the rate
is closer to $70.
One drawback to participation in the rollover option,
though: It cannot be used in conjunction with the "grace period"
that many employers offer to allow plan participants to spend
leftover FSA money in the first quarter of the following year.
Nevertheless, benefits administrators expect a majority of
companies to jump on board by 2015. They also expect an increase
in the number of employees who participate and the amounts they
contribute in pretax dollars.
It is open enrollment season for benefits, and many
companies are asking workers to decide how much they will
contribute during 2014 to their FSAs, up to the $2,500 limit.
Since the rule change was just announced, employees may not be
able to find out in time if their company is going to adopt a
rollover program, and when it will be effective.
"When I saw the bulletin, I thought great, but not now,"
says Shannon Swanson-Arend, director of benefits and wellness
for New Brighton, Minnesota-based APi Group Inc, parent of 40
fire-protection, industrial and construction companies.
The timing makes it hard to lure workers who were afraid of
losing FSA money in the past. Indeed, about one in four do leave
money on the table currently, says Alegeus Technologies, the
largest provider of benefit administration services.
Benefits administrator HR Simplified found one client with
about 9,000 employees had nearly half of those with an FSA lose
money last year. As 94 percent of them lost less than $500, it
shows the potential value of a rollover.
The company is now considering adopting the rollover,
perhaps even for the 2013 calendar year, which just has two
months left, says HR Simplified President Mike Melnychuk.
If your employer adopts a rollover for 2013, be prepared to
spend your FSA account down to $500 fast, the way you would if
you were up against the grace period deadline, says Mercer's
Renz. The good news, he adds, is that this might be the last
time you rush around buying extra eyeglasses to use up your
funds before you lose them.
WAIT AND SEE
Most companies will probably wait to add the rollover in
2014 or later. Industry experts expect that many employees can
then be enticed to contribute to an FSA, since up to $500 would
then be essentially risk-free. (One potential hitch, however, is
that if workers build up an account balance and then leave a
company, they need to spend all the money or lose it.)
APi Group, an HR Simplified client, says it might not make
the rollover change until 2015, if at all. First, the company
plans to look at the spending patterns of workers to see if a
grace period is more advantageous.
Another factor in deciding whether to implement a rollover
may be how the company previously dealt with leftover FSA money,
which it can neither take as a profit nor give back to the
For a company with just a few dozen employees, the funds do
not amount to much, but for one with 10,000 workers, the unused
money may total more than $500,000, according to experts.
Companies typically use it to cover unspecified "administrative
Helen Darling, president of the National Business Group on
Health trade group, says some employers put the money back into
the general pool to help offset healthcare premium increases.
At APi, however, the amount left over was negligible. "We
wouldn't have a budget impact at all," says Swanson-Arend.
Companies are not worried about losing access to the funds,
says Joe Jackson, chief executive officer of benefits
administrator WageWorks Inc. When he started the
lobbying effort a few years ago to get the rollover, he polled
companies. Their unanimous response: "We don't like getting that
For a large company, Renz says this is because even $600,000
in leftover FSA does not do a lot to bend the benefits cost
"It's an employee relations issue," he says. "I don't care
if you lose $5 or $500, it's going to leave a bad taste in your