Vital Signs Blog

Treasury Dept. makes FSA more flexible with rollover option

It's the end of the year and you still have money in your pre-tax health flexible spending account. You're thinking that over your dead body will you allow hundreds of dollars of your hard-earned wages to go to waste. If you don't use it, the funds go back to your employer, who is not allowed to give it back to you.

So you tell yourself, “Hey, why not get a new pair of glasses?” Or, “I should get that extra dental cleaning because it will give me a chance to spend time with that friendly hygienist with the nose ring.”

This way of thinking may be history because the U.S. Treasury Department released a new rule Thursday allowing employers to let plan participants roll over up to $500 in unused health flexible spending funds to the following year.

The Treasury's move recognizes that the year-end rush for unnecessary healthcare services needed to be chilled, said Joe Jackson, CEO of WageWorks, a company that administers consumer-directed benefits. “Rather than having people go out and buy five boxes of Band-Aids or 10 bottles of cough syrup they don't need, those dollars can be spent on the things they were meant for,” Jackson said.

Of course, not everyone made a mad dash to Walgreen's under the old system. As many as 3.5 million holders of flexible spending accounts were saying goodbye to hundreds of dollars each year, Jackson said.

There are some possible drawbacks to the new rule. First, it's optional for employers to make the rollover change. Second, under the old system, account holders were allowed a grace period of 2 1/2 months to spend the money in the accounts. Employers will have to choose if they want to keep that option, or implement the new $500 rollover option. But they can't do both, the Treasury said.

It is unclear what federal fiscal impact this could have. It could encourage more people to put pre-tax dollars in such accounts, reducing tax revenues.

Treasury said there is no official estimate of the fiscal impact of the new rule.


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