Most Employers Implemented FSA Rollover Rule

More than half allow employees to rollover leftover balances versus offering a 2 1/2-month grace period for using funds.

When flexible spending account (FSA) plan changes became effective for plan year 2014, more than half of companies (51%) adopted the rollover option, versus 49% that elected to offer a 2 1/2-month grace period for using FSA funds, according to the 2014 Flexible Spending Account Trends Study from the Healthcare Trends Institute.

In November 2014, regulators modified the FSA use-it-or-lose-it rule to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. Plan sponsors have always had the option of allowing employees a grace period permitting them to use amounts remaining unused at the end of a year to pay qualified FSA expenses incurred for up to two and a half months following year-end.

Sixty-eight percent of employers that implemented the FSA rollover rule said they did so to encourage participation by those employees that were reluctant due to the fear of losing money they put into the account. More than one-quarter of employers (27.6%) indicated they adopted the rollover rule because employees’ year-end balances tend to be lower than $500, so it made sense to give them the ability to roll over into next year. Slightly more than 4% of employers said employees requested the rollover option.

Among those employers that did not implement the FSA rollover rule, 37% did not want to change their system or processes to manage the change, and 20.4% did not want to increase employee communication efforts to explain the new benefit and are happy with the grace period option. However, of those that did not offer the rollover option in 2014, 40.5% stated they will consider the option in the future.

While most companies (66%) reported they didn’t experience any challenges as a result of adopting the rollover option, nearly 20% reported administrative roadblocks, followed by 17% that had system compatibility issues. Others grappled with employee education and communication concerns.

The results of the study may be downloaded from here. A free registration is required.