FSAs: Arming employees with need-to-know info
September 2, 2009 by Jared BilskiPosted in: Health care, In this week's e-newsletter - benefits, Latest News & Views, Pay and benefits
To maximize the success of flexible spending accounts, benefits managers need to clear up employees’ confusion and pass vital info along in the most efficient manner possible.
Here are several areas of flex accounts that often trip up employees:
- Contribution rates. More employees than you’d think are unclear about the actual meaning of a “pretax benefit,” like an FSA. Solution: Provide a concrete example for. For instance, ask employees how much they expect to pay for out-of-pocket medical expenses throughout the year, then show them how much they’d end up paying with tax.
Example: Three hundred dollars in an FSA would end up being roughly $384 of taxable income. Seeing an actual dollar amount in connection to the FSA can go a long way with on-the-fence staffers. (Note: Make sure employees are well aware of the maximum dollar/maximum salary percentage that can be contributed to your FSA.) - Eligible expenses. While most employees know that FSAs reimburse out-of-pocket costs that aren’t covered (i.e., co-pays, deductibles, vision, dental, etc.), some may not be aware that over-the-counter meds are also an eligible expense. The key is to ensure employees know all of the expenses their FSA money can be used to reimburse.
- Benefits combinations. Many firms offer additional pretax benefits, such as a 401(k). Encouraging employees to contribute to an FSA — even if it’s a very small amount — when your company has multiple pretax benefits gives them an added bonus. By placing money in multiple pretax benefits, employees effectively cut their taxable income.
Tags: 401(k), Contribution rates, Eligible expenses, flexible spending account, Pretax benefits
September 3rd, 2009 at 3:48 pm
Jared – additional confusion arises when referring to FSA’s as ‘health savings accounts’. As you know, these are 2 distinct benefits, that cannot be combined (except under very limited circumstances), with the HSA only available if the corresponding medical insurance plan is in place. Staff understanding is greatly enhanced when benefits are not mis-identified.
September 10th, 2009 at 10:27 am
Most don’t understand that it’s a “use it or lose it” benefit. That is one thing, along with the others mentioned above and in “cyndi’s” comment, that I always reinforce. I always tell employees to budget carefully to make sure they will actually use the money during the year. I use examples of how to effectively use the FSA, talking to them about things such as dental work they need to have done that’s not covered by insurance, contacts (how many boxes do they have to buy a year that aren’t covered by insurance), prescription medication co-pays that they have to pay monthly or every 3 months; things like that. The plan is supposed to be a benefit, so I want to make sure no one loses any money if they participate. If they’ve never participated before, I tell them to be conservative in their estimate the first year so they can get a feel for how much they do actually spend and how well the benefit works for them. This has always worked well and I think employees appreciate that I’m trying to make sure they don’t lose any money.
I also do an illustration of the difference between using the FSA and not paying taxes on the money they put into “their account” and the taxes they would pay if they didn’t use the FSA. I always ask them if they enjoy paying taxes and want to pay more than they have to. I’ve never had anyone say they did. That’s when I tell them, if you know you’re going to have to spend this money for covered expenses, why pay taxes on that income? Why not put the money into the FSA instead, reap the tax break and get to use the money right away while taking a whole year to actually put the money in “their account” (I always stress that it is their account…their money) just a little at a time from each pay check? This is usually when the light bulb goes on.