Changes to the Use-or-lose Rule for Health FSAs

On Oct. 31, 2013, the IRS released Notice 2013-71, which relaxes the “use-or-lose” rule for health FSAs. Under the relaxed rule, an employer may allow employees to carry over up to $500 of unused FSA amounts to the next plan year. The plan may specify a lower carryover amount as the permissible maximum and also has the option of not permitting any carryover at all. This modification applies only if the plan does not also incorporate the grace period rule, and requires a written plan amendment.

The Notice also clarifies the scope of a transition rule under the health care reform “pay or play” provision for health plan coverage elected under a cafeteria plan. Under the transition rule, an applicable large employer may choose to amend its non-calendar year cafeteria plan to permit certain changes in salary reduction elections related to the 2014 health care reform changes. The Notice clarifies that relief is available to an employer with a cafeteria plan with a non-calendar plan year beginning in 2013, whether or not the employer is an applicable large employer or applicable large employer member.

Please read the attached pdf for a more in-depth look at this notice.

As always, please contact your Stellar representatives with further questions.