A new bill before Congress would eliminate the “use it or lose it” provision of employee Flexible Spending Accounts.
Congressmen Charles Boustany (R-La.) and John Larson (D-Conn.) have introduced the Medical Flexible Spending Account Improvement Act (H.R. 1004).
The bill would allow consumers to withdraw and pay taxes on any remaining funds in their medical flexible spending accounts (FSAs) instead of forcing them to forfeit the remaining balance to their employer, as current rules require.
The proposal’s certainly not going to be popular with employers — unless lawmakers are willing to change some other FSA rules.
Currently, employees with medical FSAs are allowed to be reimbursed up to the full amount of their annual account “budgets” at any time during the year.
Thus, an employee who’s decided to set aside, say, $1,000 for the year can collect that full $1,000 on Jan. 2 — long before the pre-tax funds have been deducted from his or her paycheck.
And generally speaking, should that same employee leave the company Jan. 3, the employer’s left holding the bag.
The use-it-or-lose it provision was the way the original regs balanced that risk. The employer took a chance by funding withdrawals before employees actually put in the money; employees risked forfeiting FSA money they didn’t use.
The proposed measure would put all the risk back on the employer.
We’ll keep you posted.
