Nearly a year and a half after the IRS opened the door to flexible spending account carryovers, 60% of employers report they have amended or are planning to amend their FSA plans to take advantage of the added flexibility.

Employees are also responding favorably, with a double-digit percentage jump in enrollment in FSA plans that adopted the carryover provision for 2015 plan years.

The findings stem from a survey conducted by WageWorks and Visa. WageWorks offers a Visa debit card employees can use to tap their FSA accounts to pay for eligible medical products and services. 

See also: What employers need to know about the FSA grace period

Since the IRS modified the “use it or lose it” rule for FSAs back on Oct. 31, 2013, employers have been quick to tap the carryover opportunity, notes Jody Dietel, Chief Compliance Officer for WageWorks.  In the survey, employers had predicted an 8% jump in FSA enrollment, but instead experienced growth of approximately 10%, Dietel said. 

A typical enrollment rate among FSA plan sponsors is around 30%, according to Dietel.

“The carryover rule means employees don’t have to rush to spend what’s left in their accounts at the end of the year,” she added. 

Most FSA sponsors previously had taken advantage of the “grace period rule” that allowed employees to drain their FSA accounts up to 2-1/2 months following the end of the plan year. That provision is effectively rendered obsolete by the new carryover rule, but employers need to amend their plans to make the switch to the carryover rule.

Employees can carry over up to $500 a year. The Affordable Care Act capped annual employee contributions to FSAs for the first time. The initial inflation-adjusted cap was $2,500, and today has been adjusted to $2,550.

The use-it-or-lose-it rule had been a major impediment to employee participation in FSAs, according to Dietel. “Employees hated it,” she said. It came as no surprise, then, that enrollment in FSAs has risen when employers have adopted the carryover provision.

See also: 5 unique ways to spend FSA dollars

Some employers may initially have been reluctant to adopt the carryover provision, anticipating a drop in employee forfeiture of FSA balances. Those forfeitures are a source of funds to pay for administering FSAs.

However, employers are now focusing on the fact that the greater employee participation in FSA plans, the fewer dollars are subject to payroll taxes, including of course the employer portion, and thus a cost reduction for employers.

Dietel anticipates FSAs with the carryover provision will soon become the “standard design” for FSAs.

Register or login for access to this item and much more

All Employee Benefit News becomes archived within a week of it being published

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access