Don’t Forget to Prepare Employee Flexible Spending Account Notices

Employers should review FSA plan documents to be sure they comply with deadlines.

As previously reported, the end of the year is a great time for employees to take advantage of any flexible spending account dollars (FSA) they may have left in their accounts. Many employers offer FSAs because they allow employees to use tax-free money to cover expenses such as medical bills, childcare and adoption assistance. Under federal law, FSAs are generally subject to a “use it or lose it” provision that forfeits any unused money at the end of the plan year.

To decrease the amount of unused funds loss, the California legislature passed AB 1554 this year expanding employer notice requirements. AB 1554, which takes effect January 1, 2020, requires an employer to notify employees who participate in FSAs of any deadline to withdraw funds before the plan year’s end.

This deadline can be tricky — many employer-sponsored FSAs allow for carryover of some unused funds or grace periods beyond the plan year to use that year’s funds. Employers should carefully review their FSA plan documents to determine the appropriate deadlines for the notice.

In addition to the notice itself, AB 1554 requires employers to deliver this notice in two different forms of communication, allowing for one form to be electronic. The law suggests communicating through mediums such as email, phone call, text message, regular mail, and in-person notification. Whichever type of notice the employer chooses, maintaining accurate and complete records helps ensure compliance.

Employers should consult with legal counsel if they have any questions about when, where and how to provide proper notice to employees under this new law.

Matthew J. Roberts, Esq., Employment Law Counsel Subject Matter Expert

CalChamber members can read more on flexible spending accounts and other laws going into affect in 2020 in New Employments Laws for 2020 on HRCalifornia. Not a member? See what a CalChamber membership can do for you.

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