FSA Plans – “Use It or Lose It” Provision Amended

The IRS issued Notice 2013-71 on October 31, 2013, which now allows up to $500 of unused funds in Flexible Spending Accounts to be carried over to the next plan year. This change can be effective to plan years beginning in 2013 and after, as long as you amend your plan document accordingly.

On December 31st of this year, “use it or lose it” will only apply to dollars $501 and above. The rollover can be $500, or any lesser amount. Employers can set a lower rollover amount, but it must make that same rollover limit available to all eligible plan participants.

This change is at the employer’s discretion. The FSA medical limits remain the same at $2,500. However, up to $3,000 may be available in the following plan year if the participant were to rollover the full $500 the prior year.

An employer can only implement this new rollover option if the plan does not include a grace period. If a grace period currently exists, it must be removed before the new rollover option is implemented.

This new amendment will require a plan document amendment. Amendments to remove the grace period, if applicable, and to adopt the rollover provision, must be adopted on or before the last day of the plan year from which amounts may be rolled over.

More information can be found here.