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ERISA and Global Benefits

New FSA Carry-over Rule

On Halloween, the IRS issued Notice 2013 -71, which announces a new FSA rule:  FSAs can now permit employees to carry over up to $500 in unused benefits from one year to the next. Any carryover will not count toward the annual FSA maximum (currently $2,500).   There are a couple of catches, though. 

First, the carry-over rule cannot be used in plans that have incorporated a “grace period” that allows participants to incur claims for reimbursement after the end of the plan year. 

Second, in order to take advantage of this new rule, employers need to amend their flexible spending account plans.

Third, in order to offer this benefit for 2014 (or, in some cases, 2013), employers will want to act quickly in light of open enrollment timing, especially if their plans currently provide for the optional grace period.

Theoretically, a plan could be amended in 2013, effective for 2013.  This may make sense for plans that do not currently have a grace period.  As for plans with a grace period, this would throw a curve-ball to participants, would negatively impact participants who planned on incurring more than the maximum $500 rollover amount in claims during the grace period, and would require analyzing plan terms to determine whether such a mid-year change would be permissible.  As to this latter group, employers likely will make changes effective in 2014, after providing an explanatory notice to participants in time for them to make new FSA elections if desired