The results are in! Based on an extensive survey of employers [no real survey occurred], we have compiled 6 Reasons to Avoid Offering an FSA Rollover. This is a highly scientific and validated list. [Not even the slightest bit. This is just for fun!]
Before we get into the reasons you are not offering FSA Rollover, let’s first re-cap, what is an FSA Rollover?
What is an FSA Rollover?
Notice 2013-71 expanded the interpretation of “use-or-lose” and allowed for a limited rollover of unused Medical FSA funds into the next plan year. Employers can configure their plans to allow up to $500 to be rolled into the next plan year. Medical FSAs no longer need to be described as “use-or-lose” but “use it now–or–use it later”. FSA Rollover is not automatic, however. Employers must expressly allow it.
1. You don’t want to empower your employees.
When you implement an FSA Rollover, you limit the fear of losing FSA funds. You might even encourage employees to make smarter choices. Smart choices are dangerous. Best to stick to fear.
2. You own stock in Band-aid®.
When “use-or-lose” rules are in full force, employees tend to feel obligated to stock-up on band-aids at the end of the year. You have to consider the stock prices. Wouldn’t want to mess with a good thing.
3. You want to complicate employees’ ability to enroll in an HSA.
Let’s be honest. An extended grace period sounds “gracious” in theory. Employees get two and half extra months to use FSA funds. But when introducing a Health Savings Account (or HSA), it really means employees may not be eligible for their HSA for an extra three months. Take Sally from Accounting. She tried to use up her FSA balance but instead carried $2.34 into the grace period. Now, instead of contributing to her HSA on January 1, she has to wait until April 1. If you designed your FSA to rollover into a Limited FSA for employees like Sally, she would be eligible for the HSA on day one. You wouldn’t want to encourage that, would you?
4. You are showing your independence.
You want to show your independence by going against the masses. According to Benefit Resource plan data, 65% of FSAs are now set-up with rollover. Just 20% offer an extended grace period and 15% continue to forfeit funds at the end of the plan year.
5. You are not interested in attracting and retaining employees.
As employees move from one job to the next, they are more likely to challenge the status quo. They are more likely to understand that rollover exists and may even “politely demand” that you consider an FSA Rollover option. It is best to stick to employees that don’t question your tactics and are grateful you even offer benefits.
6. You just need a little better understanding and time.
In all seriousness, often we find employers just need a little time to understand the benefits of an FSA Rollover, along with a transition strategy. Moving from a forfeiture approach to FSA Rollover can be accomplished at any time. It is viewed positively by employees and is a true value add. If moving from an extended grace period to an FSA Rollover, you will want to prepare employees for the change and introduce it prior to the open enrollment period. This allows employees to adequately plan their election and any predicted timing of major expenses.
If you are interested in learning more about FSA Rollover, please feel free to contact us.
