Rules Eased for Health FSAs – January 9, 2014

In Notice 2013-71, the IRS modified the “use-it-or-lose-it” rule that applies to health flexible spending arrangements (FSAs):

• Plans may now be amended to allow participants to carry over up to $500 of unused health FSA funds at the end of a plan year; any carryover will not count against the $2,500 limit in the next plan year.
• A plan may allow participants a grace period (up to 2 1/2 months after the end of the plan year), or the ability to carry over unused funds–but not both; a plan does not have to allow either the grace period or the carryover option.
• To adopt the carryover option, plans must be amended on or before the last day of the plan year from which amounts may be carried over, and may be retroactive to the first day of the plan year, provided certain requirements, including participant notification, are met.
• Special rules apply to plan years beginning in 2013–these plans may be amended to adopt the carryover provision at any time on or before the last day of the plan year that begins in 2014.

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