FSAs More Attractive After Government Changes

The US Treasury Department’s amendment to the “use-it-or-lose-it” rule for FSAs to allow a 2 1/2-month grace period for spending will help bolster interest in the consumer-driven accounts.

The new rule will give workers with FSAs more time to pay for medical and dependent care expenses and will ease the year-end spending rush prompted by the prior rule.

Before the change, workers were required to spend their funds within the plan year or forfeit the unspent money. Under the new rules, if workers were required to empty their accounts by the end of December, they can have until mid-March to use the funds.

Most employers will likely adopt the new grace period in their FSAs, which workers use to pay for health expenses with pretax dollars. Employers may have higher FSA administration costs to adopt and communicate changes to workers, but they will make the changes because of the enhancement of the benefit.

The flexible spending arrangements allow workers to set aside untaxed wages in special accounts to spend throughout the year; effectively stretching their paychecks for health and child care costs.