FSA gains $500 rollover feature

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kd2008
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FSA gains $500 rollover feature

Post by kd2008 »

FSA gains rollover feature http://www.nytimes.com/2013/11/01/busin ... f=business
Workers taking advantage of special tax-free accounts to pay out-of-pocket medical expenses could soon be allowed to carry over up to $500 from one year to the next.

For nearly 30 years, employees eligible to use the accounts had to forfeit any unspent money at the end of the year.

A new rule will now permit employers to let plan participants roll over up to $500, the Treasury Department said Thursday.

Employers sponsoring the plans, however, are not required to offer the option.
Bob's not my name
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

The new rule says plans can offer either a grace period or the $500 rollover, but they cannot offer both.
The government can be so disappointing.
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runner9
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Re: FSA gains $500 rollover feature

Post by runner9 »

I saw this yesterday as well. As I currently have $65 sitting in our FSA and don't think I'll be using it unless a family member gets sick this will be a nice feature in the future. Last year we ran out in August so I upped it for this year. Of course, no copays on well checks has helped.
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Re: FSA gains $500 rollover feature

Post by Grt2bOutdoors »

About time!!! - no more money grab by the employer to subsidize their benefits expense.
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SJG
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Re: FSA gains $500 rollover feature

Post by SJG »

As I'm reading it, it's not that good a deal. I was hoping it would work like an HSA and I could build up a little medical expense retirement account at the rate of $500 a year.

The gotcha is you can carryover $500 for medical expenses "in the next year". You also have to give up the grace period of 2 1/2 months if you want to do this (employers choice, not yours).

It may encourage more people to put in small amounts (which is not a bad thing). But the folks contributing the max of $2,500 would have to scramble to get their unused funds down to $500 by the end of the year instead of March 15th.

I may be wrong, but that's how I read it.

Steve
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

I agree. It's a big nothing.

It's hard to decide whether the grace period or the $500 is a better option. Our employers will decide for us in any case. $500 is such a pathetic number -- that's the out-of-pocket cost for one crown or a pair of eyeglasses. I'm inclined to think the grace period is better because if you have a major, schedule-able medical expense you don't have to rush your medical procedure into the holiday season.
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Re: FSA gains $500 rollover feature

Post by guitarguy »

Bob's not my name wrote:
The new rule says plans can offer either a grace period or the $500 rollover, but they cannot offer both.
The government can be so disappointing.
Yep. This is nonsense.
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cflannagan
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Re: FSA gains $500 rollover feature

Post by cflannagan »

Bob's not my name wrote:I agree. It's a big nothing.
With that kind of attitude we wouldn't be Bogleheads. It's our attention to details that enables us to live our lives in a Boglehead-like way.

Last year, we had therapy sessions for one of my kids, and I had the whole year budgeted perfectly via FSA. The only problem is, their billing department is a mess. I am on phone with then constantly because they keep using wrong codes and keep using wrong charge amounts (it's easy enough for us to know what is wrong and right, because if everyone did their jobs properly, we are to be charged only the amount for co-pay, per therapy session).

Their billing department ends up telling me we're in good standing. I doubled, tripled checked my math, I'm positive I owe them at least $500 in copayments. I keep telling them that, they said no, I'm in good standing. They also sound frustrated, so I suspect they have gave up trying to sort it out for my account and decided to cut their losses. I asked for them to send me a signed letter saying my balance is zero and in good standing as of a date, and they sent me signed letter to that effect.

So that brings me to the FSA problem. We bent backwards to spend $500 (ie: after confirming with the FSA people, we were told we are allowed to go back to our older submissions and add mileage costs, which technically the FSA does cover too). We barely managed to spend every last cent of $500, and nothing of it was wasted just to spend it all.

This is a welcome change. if something like this happens, I can simply roll it over to the next year and also adjust the next year FSA budget accordingly.

Now I need to find out if my employer is going to offer such a plan..
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

Perhaps the grace period would have worked equally well in that scenario. My employer already provides the grace period.

In any case, the new $2,500 limit means I exhaust my FSA every year around now, so neither the grace period nor the rollover is useful. For married couples with access to two FSA's and therefore $5,000 of space, the flexibility will be more useful.
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Re: FSA gains $500 rollover feature

Post by Epsilon Delta »

One oddity is that some employers have plans that don't use the calendar year. Typically school districts use the academic year, from September to August. If a husband and wife are on plans with different years there is a lot more room for maneuverer, you get two chances a year to adjust the contribution and can choose to be reimbursed by from the account with the shortest deadline.
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Re: FSA gains $500 rollover feature

Post by runner9 »

Epsilon Delta wrote:One oddity is that some employers have plans that don't use the calendar year. Typically school districts use the academic year, from September to August. If a husband and wife are on plans with different years there is a lot more room for maneuverer, you get two chances a year to adjust the contribution and can choose to be reimbursed by from the account with the shortest deadline.
Both my wife and I each for different districts: both offer plans that use the calendar year. Open enrollment in November or part of November with an effective date of January 1.
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Epsilon Delta
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Re: FSA gains $500 rollover feature

Post by Epsilon Delta »

runner9 wrote:
Epsilon Delta wrote:One oddity is that some employers have plans that don't use the calendar year. Typically school districts use the academic year, from September to August. If a husband and wife are on plans with different years there is a lot more room for maneuverer, you get two chances a year to adjust the contribution and can choose to be reimbursed by from the account with the shortest deadline.
Both my wife and I each for different districts: both offer plans that use the calendar year. Open enrollment in November or part of November with an effective date of January 1.
Must learn not to generalize. :oops:

I should have already known that, since the school districts I'm familiar with have two different benefit years, the calendar year for full year employees (superintendent, office staff, janitors) and the academic year for part year employees (most of the instructional staff, cooks).
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LH
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Re: FSA gains $500 rollover feature

Post by LH »

This makes it better imo.

But if one has an HSA, one cannot have an FSA? Is this still the case?

thanks

LH
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serbeer
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Re: FSA gains $500 rollover feature

Post by serbeer »

Bob's not my name wrote:I agree. It's a big nothing.

It's hard to decide whether the grace period or the $500 is a better option. Our employers will decide for us in any case. $500 is such a pathetic number -- that's the out-of-pocket cost for one crown or a pair of eyeglasses. I'm inclined to think the grace period is better because if you have a major, schedule-able medical expense you don't have to rush your medical procedure into the holiday season.
Not Bob,
I was under firm impression that you CANNOT double on FLEX plan limit even if both earners in the family have access to it through their employers. So, maximum IRS allows per family/join tax return is still $2,500 for total healthcare FLEX. Now, you can still have childcare FLEX account in addition to that, but, just the same, cannot double it up to $10K in childcare.

BTW, I think this change is very useful, I am tired of having to guess every year and always guess wrong. But I am <$500 wrong, so I like the change...
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VictoriaF
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Re: FSA gains $500 rollover feature

Post by VictoriaF »

LH wrote:This makes it better imo.

But if one has an HSA, one cannot have an FSA? Is this still the case?

thanks

LH
I have HSA for the medical expenses and LEX (a type of FSA) for the dental and vision expenses.

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curtin1060
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Re: FSA gains $500 rollover feature

Post by curtin1060 »

For those of us that already went through our company's "Open Enrollment" and signed up for 2014, this is bogus ... I doubt they'd let us change our FSA numbers.
gkaplan
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Re: FSA gains $500 rollover feature

Post by gkaplan »

Too bad I'm retiring at the end of this leave year. Well, maybe not.
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

serbeer wrote:
Bob's not my name wrote:I agree. It's a big nothing.

It's hard to decide whether the grace period or the $500 is a better option. Our employers will decide for us in any case. $500 is such a pathetic number -- that's the out-of-pocket cost for one crown or a pair of eyeglasses. I'm inclined to think the grace period is better because if you have a major, schedule-able medical expense you don't have to rush your medical procedure into the holiday season.
Not Bob,
I was under firm impression that you CANNOT double on FLEX plan limit even if both earners in the family have access to it through their employers. So, maximum IRS allows per family/join tax return is still $2,500 for total healthcare FLEX. Now, you can still have childcare FLEX account in addition to that, but, just the same, cannot double it up to $10K in childcare.
Sorry, your firm impression is incorrect. :D
irs wrote:The $2,500 limit on salary reduction contributions to a health FSA applies on an employee-by-employee basis. Thus, $2,500 (as indexed for inflation) is the maximum salary reduction contribution each employee may make for a plan year, regardless of the number of other individuals (for example, a spouse, dependents, or adult children (see § 105(b)) whose medical expenses are reimbursable under the employee’s health FSA. Consistent with this rule, if each of two spouses is eligible to elect salary reduction contributions to an FSA, each spouse may elect to make salary reduction contributions of up to $2,500 (as indexed for inflation) to his or her health FSA, even if both participate in the same health FSA sponsored by the same employer.
Last edited by Bob's not my name on Fri Nov 01, 2013 7:20 pm, edited 1 time in total.
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

serbeer wrote:BTW, I think this change is very useful, I am tired of having to guess every year and always guess wrong. But I am <$500 wrong, so I like the change...
If your plan has the grace period, this issue should be already addressed. If it does not, then there's no reason to believe it will adopt the new flexibility when it didn't offer the old flexibilty. If it does, then there's no reason to believe it will jettison the old flexibility to pick up the new flexibility.

The reason this change is so piddling is that the maximum benefit due to the change (and most FSA users would never come close to this hyperbolic example) is the saving of $500 of gross salary, or about $300 of net salary for a taxpayer in the 25% bracket with an average state tax.
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Re: FSA gains $500 rollover feature

Post by serbeer »

Bob's not my name wrote:
serbeer wrote:
Bob's not my name wrote:I agree. It's a big nothing.

It's hard to decide whether the grace period or the $500 is a better option. Our employers will decide for us in any case. $500 is such a pathetic number -- that's the out-of-pocket cost for one crown or a pair of eyeglasses. I'm inclined to think the grace period is better because if you have a major, schedule-able medical expense you don't have to rush your medical procedure into the holiday season.
Not Bob,
I was under firm impression that you CANNOT double on FLEX plan limit even if both earners in the family have access to it through their employers. So, maximum IRS allows per family/join tax return is still $2,500 for total healthcare FLEX. Now, you can still have childcare FLEX account in addition to that, but, just the same, cannot double it up to $10K in childcare.
Sorry, your firm impression is incorrect. :D
irs wrote:The $2,500 limit on salary reduction contributions to a health FSA applies on an employee-by-employee basis. Thus, $2,500 (as indexed for inflation) is the maximum salary reduction contribution each employee may make for a plan year, regardless of the number of other individuals (for example, a spouse, dependents, or adult children (see § 105(b)) whose medical expenses are reimbursable under the employee’s health FSA. Consistent with this rule, if each of two spouses is eligible to elect salary reduction contributions to an FSA, each spouse may elect to make salary reduction contributions of up to $2,500 (as indexed for inflation) to his or her health FSA, even if both participate in the same health FSA sponsored by the same employer.
Hm, indeed! Thank you. Is it a change from when old $5K limit was in place? I asked several times on this forum then if it means both husband and wife can contribute total of $10K, and every time people said no. And what about childcare FLEX, is the limit $5K per family or emplyer?
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Re: FSA gains $500 rollover feature

Post by ilisira »

Epsilon Delta wrote:One oddity is that some employers have plans that don't use the calendar year. Typically school districts use the academic year, from September to August. If a husband and wife are on plans with different years there is a lot more room for maneuverer, you get two chances a year to adjust the contribution and can choose to be reimbursed by from the account with the shortest deadline.
My wife works for a state university, and this is exactly what we do. This way we can have a little bit more flexibility (but change from one's insurance plan to the other will be extremely hard, either a 5 month gap, or 5 months of extra payment)..
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Re: FSA gains $500 rollover feature

Post by Evolence »

Daycare FSA is limited to $5,000 / household.
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

serbeer wrote: Is it a change from when old $5K limit was in place?
It is my understanding that there never was an IRS limit.
IRS wrote:There is no limit on the amount of money you or your employer can contribute to the accounts; however, the plan must prescribe either a maximum dollar amount or maximum percentage of compensation that can be contributed to your health FSA.
I believe $5,000 was a common employer-selected limit. I don't believe there was a family limit, either, so it must be the child care rule you are remembering (thanks to Evolence, since I know nothing about them).
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runner9
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Re: FSA gains $500 rollover feature

Post by runner9 »

For what it's worth, from our open enrollment packet that was made available yesterday:
* Note: Important change for Flexible Spending Accounts
Under provisions of the Patient Protection and Affordable Care Act (PPACA), salary reduction contributions made to a health care Flexible Spending Account (FSA) will remain capped at $2,500. If two spouses work for the same company, each would still be able to contribute $2,500 for a total of $5,000. For the Dependent Care Spending Account you are eligible to deposit up to $5,000 per calendar year (married filing jointly), or $2,500 if you are married and file
separate income tax returns.
Last year's packet (for Nov. 2012 open enrollment) had basically the same statement, saying the change was effective January 1, 2013.
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serbeer
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Re: FSA gains $500 rollover feature

Post by serbeer »

Thanks folks, it all helped to clarify it
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Re: FSA gains $500 rollover feature

Post by Oilburner »

We participate in the medical FSA through my wife's employer, but my new employer offers one (my old employer did not), so I will compare plans.

I did not see the following mentioned above: My wife's FSA DOES NOT have a grace period where two and a half months in the following year can be used to purchase qualifying items with the previous year's monies set aside, but lets participants file expenses up until March 15, 2014. All eligible expenses must be incurred in 2013. Her plan is very specific on this.

Also, as I understand it, for those employers that offer FSAs, the new Federal provision of either allowing participants to purchase qualifying items 2.5 months into the following year with the previous year's allotment, or allowing a $500 FSA balance carry-over into the following year, is optional. Employers don't have to adopt these new provisions. I did not see that mentioned above either.

Since we are in open enrollment now at my work, I asked Human Resources if they planned to offer the newly-allowed $500 carry-over for their FSA. They were not aware of any new provisions and said in an uncommitted manner they would look into it.
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FSA Use it or Lose it Modified - carryover $500

Post by C8H18Engineer »

[Thread merged into here. --admin LadyGeek]

As I understand it the Treasury Department modified the rule and issued a notice on Oct 31, 2013 which says that plan sponsors may allow employees to carry-over up to $500 of any remaining balance rather than lose it at the end of the year. See their post here http://www.treasury.gov/press-center/pr ... l2202.aspx

The Wiki will probably need to be updated as well: http://www.bogleheads.org/wiki/Flexible ... rrangement
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Re: FSA Use it or Lose it Modified - carryover $500

Post by LadyGeek »

Thanks for the heads up. I'm not a lawyer, but the regulations have not been finalized. Until that happens, it's still a proposed regulation* which should not go into the wiki.

The link in human readable format: Treasury Modifies "Use-or-Lose" Rule for Health Flexible Spending Arrangements

The modification notice: modification notice​

Here's the fact sheet which contains (last page):
The Treasury Department and the IRS intend to amend Prop. Treas. Reg. §§ 1.125-1(o) and 1.125-5(c) to reflect the guidance in this notice; taxpayers may rely on the guidance in this notice pending the issuance and effectiveness of those amendments to the regulations.
Wiki article link: Flexible spending arrangement

*Proposed regulations which have been published for public comment are on-topic to discuss.
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Re: FSA Use it or Lose it Modified - carryover $500

Post by Spirit Rider »

Two key points:

One is that the plan "may" choose the new option, or not. Generally most plans adopt new changes, but not all. Also, sometimes it may take them a year or two to adopt the change. Some plans have not even adopted the currently allowed grace period.

Second, is that this is an "either or" situation, not an "and" situation. The plan can adopt they new $500 carryover rule, or remain with the grace period, but not both.
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runner9
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Re: FSA Use it or Lose it Modified - carryover $500

Post by runner9 »

Didn't we already start discussing this here?:

http://www.bogleheads.org/forum/viewtop ... 2&t=125698
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Re: FSA gains $500 rollover feature

Post by LadyGeek »

Yes, we did. Thanks, I missed that and have merged the thread into here.
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Re: FSA gains $500 rollover feature

Post by bigfun »

Hello, I am seeking help to navigate the rollover or grace period option with my employer. Via email, I asked my employer if the company was going to utilize the new $500 carryover feature and was told no. I asked if there were plans to implement this and was told no. I asked if we were instead using the 2 1/2 month grace period option and was told no. The employer's plan offers a 90-day grace period for claims, not newly incurred expenses.

Can anyone offer insight as to why a company would reject either feature - the carryover or grace period for expenses? Everyone who works here is on the same exact plan, so we would all benefit from either option. A post-year 90 day window to make claims is not much of a benefit compared to what the IRS is now allowing. Should I inquire or nudge further? I can't fathom the rationale here. Thanks!
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

I'd guess the rationale is that it's a piddling benefit not worth the accounting cost. $500 pre-tax is worth $300 post-tax. Big deal. The 2.5-month grace period is way better; focus your lobbying on that.
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Re: FSA gains $500 rollover feature

Post by bigfun »

I meant the rationale for offering neither. Are there any accounting costs associated with offering the 2 1/2 month grace period? My company has around 100 employees and uses one of the major health insurance companies that processes all claims. What would my employer have to do to sign up for the grace period? Thanks!
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Re: FSA gains $500 rollover feature

Post by Bob's not my name »

I guess you could pursue a couple of concrete facts: Does our chosen provider offer to support a grace period? If so, what is the incremental cost? If not, what's the cost of changing providers?
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Re: FSA gains $500 rollover feature

Post by Spirit Rider »

bigfun wrote:Hello, I am seeking help to navigate the rollover or grace period option with my employer. Via email, I asked my employer if the company was going to utilize the new $500 carryover feature and was told no. I asked if there were plans to implement this and was told no. I asked if we were instead using the 2 1/2 month grace period option and was told no. The employer's plan offers a 90-day grace period for claims, not newly incurred expenses.

Can anyone offer insight as to why a company would reject either feature - the carryover or grace period for expenses? Everyone who works here is on the same exact plan, so we would all benefit from either option. A post-year 90 day window to make claims is not much of a benefit compared to what the IRS is now allowing. Should I inquire or nudge further? I can't fathom the rationale here. Thanks!
The company takes the risk when an employee leaves with a negative balance. This is countered by the employee taking the risk that they do not use up all of their balance by the end of the year or leaving a positive balance on separation.

In the former one the company has a loss and the latter two the company has a gain. So this I basically changing the odds more in favor of the house.

Most company's consider the increased risk created by the grace period or rollover as a benefit to employees. Clearly your company does not. Are they cheap when it comes to other benefits? Or might this be based on an allocation of available benefit dollars that they spend elsewhere.
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Re: FSA gains $500 rollover feature

Post by kenyan »

Evolence wrote:Daycare FSA is limited to $5,000 / household.
And is sadly (particularly given the extreme inadequacy of the limit) not inflation-adjusted. We use that up in 3.5 months.
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Re: FSA gains $500 rollover feature

Post by bigfun »

Spirit Rider wrote:
bigfun wrote:Hello, I am seeking help to navigate the rollover or grace period option with my employer. Via email, I asked my employer if the company was going to utilize the new $500 carryover feature and was told no. I asked if there were plans to implement this and was told no. I asked if we were instead using the 2 1/2 month grace period option and was told no. The employer's plan offers a 90-day grace period for claims, not newly incurred expenses.

Can anyone offer insight as to why a company would reject either feature - the carryover or grace period for expenses? Everyone who works here is on the same exact plan, so we would all benefit from either option. A post-year 90 day window to make claims is not much of a benefit compared to what the IRS is now allowing. Should I inquire or nudge further? I can't fathom the rationale here. Thanks!
The company takes the risk when an employee leaves with a negative balance. This is countered by the employee taking the risk that they do not use up all of their balance by the end of the year or leaving a positive balance on separation.

In the former one the company has a loss and the latter two the company has a gain. So this I basically changing the odds more in favor of the house.

Most company's consider the increased risk created by the grace period or rollover as a benefit to employees. Clearly your company does not. Are they cheap when it comes to other benefits? Or might this be based on an allocation of available benefit dollars that they spend elsewhere.
Forgive my ignorance (that's why I'm here!), but I need a little help understanding the employee's risk vs the employer's risk. If the employee has a negative balance that means his claimed FSA benefits exceed his payroll deductions so far in the plan year, correct? If the employee wants to use a 2.5 month grace period for claims, how is that a risk to the employer?

Suppose he elects $1000 in an FSA for my plan year, and uses half of that during the plan year, and the other half during the 2.5 month grace period. At the end of the plan year, he has only used $500 but has completed $1000 in payroll deduction. Doesn't the main risk to the employer come when the employee front-ends all his claims at the beginning of the year and then quits? And even if he does so, is there no recourse for the employer to get the balance of the payroll deductions owed?

Besides my desire to learn for its own sake, I really need to have a good grasp before I talk to my employer again. Thanks!
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runner9
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Re: FSA gains $500 rollover feature

Post by runner9 »

It's weird to me, my employer has the same outside company for both Dependent Spending and Flex Spend for healthcare. (same for both plans, not same as OP as far as I know)

Dependent Care can only be paid out after deducted from paychecks. So, right now I get a paper check every two weeks when they get the money from my paycheck if claims are already processed.

For Flex Spend I can spend up to the yearly max as soon as the year starts.
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Re: FSA gains $500 rollover feature

Post by Spirit Rider »

The grace period reduces the employee's risk. They have 14 1/2 months to spend their estimated 12 month expenses. The are much less likely to have unspent dollars in their account (less risk).

The employers risk is the same regardless of the whether or not the grace period is available. Employee turnover is a significant factor in employer risk.

So it is really what the modeling of these two opposing sides end up being,
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Re: FSA gains $500 rollover feature

Post by ray.james »

I was talking to HR at my company. The way the end company implemented it, the 500$ rollover is only for 1 year. So if I do not use the money at all, it doesn't rollover again. Just thought people might mistake the way rollover happens.
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Re: FSA gains $500 rollover feature

Post by davegreen10 »

That doesn't sound correct the way I read the regulations; perhaps your HR is mistaken. I read it as you can roll $500 max over each year but not accumulate over multiple years. So you can only start the fresh year with a $500 max balance.

I like this feature. It helps to max against your expenses while giving some "flex" in case you didn't use your crystal ball correctly to predict them. I utilize an HSA so we only have the limited FSA option for dental or vision expenses. I will put just $500 in as I don't know when we will use it. It might take a few years to use part or all of it. I think the ROI in tax avoidance will outweigh the uncertainty of when we will utilize it
Spirit Rider
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Re: FSA gains $500 rollover feature

Post by Spirit Rider »

ray.james wrote:I was talking to HR at my company. The way the end company implemented it, the 500$ rollover is only for 1 year. So if I do not use the money at all, it doesn't rollover again. Just thought people might mistake the way rollover happens.
I agree with davegreen10, they are either mistaken or it is simply a matter of semantics.

The company has a choice in whether to implement the grace period or the carry over rule. In the next year they may administratively consider the first dollars out from the carry over or the enrolled amount.

However, there is no provision to expire the carry over. The question of how much can be carried over is simply a determination of what the ending balance is based on any carry over + the enrolled amount - distributions.

Please refer to IRS Notice 2013-71 Example 4. on pages 6-7. This explicitly demonstrates with a carry over with no enrolled amounts and only a partial distribution can still be carried over to the next year and subsequent years.

For example, if in one year you enrolled for $2500, but only used $2000, you would carry over $500. You could continue to carry over that $500 balance indefinitely if your distributions matched your enrollment each year.
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