FSA rollover is a hot topic for flexible spending account (FSA) participants. After the pandemic caused many FSA eligible services to become unavailable for an extended period, many are wondering, “What will happen to my unused FSA funds after this past unfortunate year?” Thankfully, there is now an answer to that question. Recent legislation, the Consolidated Appropriations Act (CAA), 2021, allows employers to let their employees roll over unused funds in their health and dependent care FSAs from 2020 to 2021, and again the following year from 2021 to 2022. While this relief is optional, it’s a welcome sight for participants whose employers choose to adopt these FSA rollover measures.
The new legislation offers more optional FSA relief as well. Employers may allow health and dependent care FSA participants to roll over the full amount of leftover funds in their accounts, instead of the usual $550 rollover cap. For 2020 and 2021 FSA plans, grace periods to incur eligible expenses may also be extended from two and a half months to 12 months. This is great news for participants who are offered relief that have or will experience issues using their FSA funds due to the circumstances of COVID-19. Employers can also let their employees make prospective election changes for 2021 health and dependent care FSAs, which increases FSA flexibility.
Additionally, employers may offer unique relief for both health and dependent care FSAs, should they choose. While dependent care FSA regulations allow funds to be used for dependents ages 12 and younger, the CAA extends dependent care FSA eligibility to dependents who turned 13 during the pandemic. Employers can allow leftover 2020 dependent care FSA funds to be used for dependents who aged out in 2020 until they turn 14. As for health FSAs, employers can allow former participants of the 2020 or 2021 plan years (including terminated employees) to access their funds until the end of the plan year. They may even use their funds during applicable grace periods.
While this new relief is not mandatory, employers who adopt these provisions can help aid their employees after a tumultuous year. BASIC has made the declaration to proactively and automatically make all applicable legislative changes to FSA plans (as highlighted below), unless the client opts out by the specified deadline date that was communicated. The ease and configurability of BASIC’s new Consumer Driven Accounts (CDA) system allows us to swiftly and effectively make these modifications across all affected plans, saving our clients time while reducing noise and disruption. We are ready to do the same every time new legislation is passed, or a new offering is developed!
At a high level, BASIC approached the client account configuration changes as follows:
- Continue to offer the configuration option(s) that the client already has/knows per account.
- Do not switch client configurations in the middle of the plan year.
- If the client does not offer grace period or carryover on HFSA, we will default to the client offering the carryover.
- If no grace period is on the DCFSA, we will default to the client offering what the HFSA has, or to carryover if no HFSA.
Any employer looking for an experienced FSA partner with industry expertise can benefit by requesting a no-cost proposal from BASIC. Our Regional Directors can help determine exactly where BASIC can improve your benefits administration, ensuring you only pay for what you need. BASIC is more than just a benefits administrator, we’re also compliance experts. We make sure every plan falls within IRS regulations so you can focus on running your business while we handle regulatory compliance. To see how your company can improve its benefits package, request a proposal today!