Federal employees now can carry over up to $500 of their unused flexible spending account funds into the next year, according to new rules from the Office of Personnel Management.
Health care and limited expense flexible spending accounts no longer will have a 2.5 month grace period, said OPM, allowing qualifying participants to roll over up to $500 of unused money into the next plan year. Dependent care FSAs will still have a grace period, and participants will not be able to carry over funds into the next plan year.
The changes take effect beginning in the 2015 plan year, so those feds with 2014 FSAs still will have a grace period going into 2015.
Federal employees as well as workers in other sectors can use flexible spending accounts, which allow them to set aside a portion of their income before taxes, to cover out-of-pocket expenses such as health care co-payments, and dental and eye care. Employees can set aside up to $2,500 annually in pre-tax money for FSAs.
For 2015, OPM also is reducing the minimum annual election for all three FSAs from $250 to $100, to encourage more federal employees to take advantage of flexible spending accounts. There are three FSA categories: general purpose, dependent, and health care and limited expense health care (LEX).
Eligible 2014 FSAFEDS participants still will have the grace period until March 15, 2015, “to incur eligible expenses for reimbursement from their 2014 account,” said the OPM notice from John O’Brien, the agency’s health and insurance director. “Participants must be employed by an agency that participates in FSAFEDS and actively making allotments from their pay through December 31, 2014, to participate in the grace period. Participants have until April 30, 2015, to submit claims for reimbursement from their 2014 account.”
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The Internal Revenue Service on Oct. 31, 2013, issued a change to the “use or lose” policy for health FSAs, giving employers the option to allow employees with FSAs to carry over up to $500 in unused balances. Employers also can opt to offer a grace period in which to use any available unused funds next year, but cannot offer both benefits. OPM took about 10 months to decide whether federal workers would be able to roll over the money.
Before the IRS made the change, all employees with FSAs had to spend the remaining balance in their accounts before the end of the plan year, or forfeit funds. In 2012, approximately 322,700 federal workers had flexible spending accounts with an average election amount of $2,050. Nearly 31,000 of those employees forfeited an average of $392 each in contributions because of the use-or-lose rule.
“Allowing federal workers to roll over some FSA funds into the next year just makes sense,” said Sen. Ben Cardin, D-Md., who along with dozens of other senators sent a letter to OPM Director Katherine Archuleta late last year urging her to provide the benefit to federal employees. “ ‘Use-it-or-lose-it’ was a wasteful practice that I have fought to end.” Virginia Democratic Sen. Mark Warner said the change was “great news for federal employees and their families.”