FSA Enrollments Up at Federal Government

May 3, 2004 (PLANSPONSOR.com) - Federal employees are jumping on the flexible spending account (FSA) bandwagon a report has found.

The report says 28,356 employees opened a health-care FSA in 2003 and 7,003 employees had a dependent-care account. Following an enrollment period, 117,950 employees opened a health-care FSA for 2004, while 18,178 opened a dependent-care account, according to a report submitted to the U.S. Congress by the U.S. Office of Personnel Management (OPM). The federal government’s FSA program has been in existence since July 2003.

OPM projects the enrollments to continue to escalate. According to projections in the report, by 2007, more than 283,000 employees will have health-care accounts and 43,627 will have dependent-care FSAs.

OPM Director Kay Coles James noted the increased rates of participation in the program and said employees benefit from pre-tax contributions to FSA, while federal agencies derive benefits from reduced payroll taxes that go well beyond the fees they pay on behalf of employees. “Employees benefit because untaxed contributions from their salaries are deposited into their FSA accounts, and the lower employee taxable income translates into agencies paying out less in Social Security and Medicare taxes,” said James. “And because agencies pay less in taxes, they more than recover the cost of paying FSA administrative fees.”

The report was prepared to examine the cost of administrative fees agencies will pay to cover employees enrolled in a FSA. OPM found agencies will pay nearly $80 million dollars in fees through 2007 for employees who have a health-care FSA, dependent-care FSA, or both.

Agencies paid $652,000 in health-care FSA fees and $287,594 in dependent-care fees in 2003. As with enrollments, fees to be paid in 2004 will increase significantly, to more than $5.6 million and $980,000 for health-care and dependent-care FSAs, respectively.