New Flexible Spending Account Notification Requirements for California Employers Effective January 1, 2020

California Assembly Bill 1554 will require employers to notify an employee who participates in a Flexible Spending Account (FSA) of any deadline to withdraw funds before the end of the plan year in at least two different prescribed manners.

The legislation refers to health care, dependent care and adoption assistance FSA accounts.

Background

An FSA is a pre-tax employee benefit account that can be used to pay for eligible medical care expenses. However, if the employee does not claim all of the money in their account during the plan year or does not file for reimbursement before the plan deadline, any remaining funds are forfeited to the employer.

AB 1554 seems to target this feature—referred to as the “use it or lose it” rule.

If health care FSA coverage terminates mid-year (such as termination of employment, change in employment status, etc.), a health care FSA will either impose a shortened submission period for runout claims or the regular calendar year runout period will apply.

For example, if an employee terminates employment on September 30, some health care FSAs require that claims incurred on or before September 30 must be filed within 60-90 days from that date.   

What Employers Need to Do

Guidance has yet to be issued which may help bring clarity to employers to comply with the new requirement.

For now, it is prudent for employers to implement a new process with regards to describing any deadline to withdraw funds before the end of the plan year. 

Who must comply: Employers with California employees enrolled in an FSA.

When:  Notices must be sent starting January 1, 2020.  While the law doesn’t describe the timing of the notifications, it is prudent to distribute at the time of entry and time of termination.  Guidance may be issued to bring clarity to the timing.

Action Required: Employees must be notified in two different forms

  • Must use two different delivery methods
    • Letter/mail
    • In-person notification
    • Email
    • Text
    • Phone call

Examples of material that can be used to describe the deadline to withdraw funds:

  • FSA Summary Plan Description (SPD)—best practice to distribute at the time a participant newly enrolls
  • FSA plan highlights available from the FSA vendor—best practice to add to your exit packet
  • Benefits Brochure—add language to describe the deadline to withdraw funds for mid-year terminations and end of plan year
  • Develop language to include on the employer’s benefit administration website
  • At the time of this article’s publication, certain FSA vendors are working to develop resources to help employers comply
Next Steps

California employers should implement a new process to ensure this information is distributed as outlined above. Please contact your benefits broker for more information about this requirement.

If you have any questions, please feel free to contact me.


Michelle Cammayo

About Michelle Cammayo

Michelle Cammayo has more than 13 years of Employee Benefits experience specializing in all lines of health and welfare benefits. Today, Michelle works closely with clients and partners to provide guidance in areas of the law including ERISA, HIPAA, COBRA, FMLA and PPACA. She also oversees the Compliance Department at Bolton & Company to ensure we are helping our clients manage and eliminate risk with regards to employee benefit compliance.

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