In the early stages of the new Health FSA rollover, the results for plan sponsors and participants are trending positive. By opting in for the new Health FSA balance rollover feature, you can reduce participants’ fear of losing money and encourage employees to contribute more dollars into their Health FSAs, saving you and employee tax dollars along the way.
Broadly analyzed data suggests that employers who implemented the rollover last year averaged an increase in participation of around 10%. Increases were particularly strong when employers took efforts to educate employees about the “safety net” the rollover provides.
In addition to seeing a strong impact on participation, we've received welcome clarification on some of the key questions raised after the original rollover guidance was issued.
1. Interaction with eligibility for HSA’s: It’s long been clear that participation in a Health FSA will interfere with an individual’s eligibility to participate in a Health Savings Account. In the first quarter of 2014, the IRS issued guidance confirming that rolling funds forward would constitute disqualifying participation in a Health FSA. However, they offered two plan design possibilities to alleviate the problem. Plans can be structured so the rollover funds automatically convert to a limited-purpose FSA for participants choosing the employers HSA-qualified plan, or to allow participants to voluntarily opt out of the rollover funds.
2. Rollover minimum: While no specific guidance has been issued, informal comments from IRS officials have indicated that structuring a minimum dollar threshold into the rollover would be acceptable. This can prevent minimal balances from rolling over year after year, for a participant who may not want or need the funds. Rather than paying for administrative fees for such a minimal account, employers can amend the plan so that the rollover only applies to substantial balances.
To view a comparison of the rollover feature to the longer standing grace period feature, click here. If you want to take advantage of this rollover feature, of if you’re not sure whether your existing plan takes advantage of the HSA compatibility features or the rollover minimum, contact BPC via email or 800-355-2350.