Many employers have calendar year Flexible Spending Account (FSA) plans even if their benefits renew in a different month. Just a reminder this time of year – you may need to amend your FSA plan document as your plan anniversary approaches. Here are three reasons you may need to make a change:
- You want to take advantage of the inflation indexing on the Healthcare FSA. Beginning January 1, 2015, the annual allowable dollar limit for employee contributions for Healthcare Flexible Spending Accounts (FSAs) will increase $50 to $2,550. Plan sponsors are not required to adopt the new limit; however, for those employers-sponsored plan who will offer the increase an amendment to the Section 125 plan document will be needed.
- You want to take advantage of the $500 Rollover Provision. Last year the Treasury Department and the IRS modified the “use-it or lose-it” rule for the FSA. Plan participants are now allowed to carryover up to $500 of their unused balances into the next plan year. If you didn’t take advantage of this last year, you may wish to amend your plan document this year to do so.
- You want to add a grace period. If you are not using the $500 Rollover, you may add a Grace Period. This allows employees to incur additional expenses during the first 2 ½ months of the next plan year to spend any unused funds from the current plan year. This is in addition to the “run out” period that all plans have to submit receipts after the expenses are incurred.
Keep in mind that plans cannot offer both a grace period and the $500 rollover at the same time. It must be one or the other. The only time that both would ever apply would be if an employer-sponsored plan had the Healthcare FSA set up as a rollover option, but with a grace period on the Dependent Care Assistance Program (DCAP).
Whichever option you choose, be sure to amend your Section 125/FSA plan document!