Compared to other impacts of COVID such as widespread unemployment, the proliferation of serious illness and the devastating statistics around loss of life, the possibility of losing some FSA money at the end of the year may seem trifling.
But it’s not.
FSA balance forfeitures can impact employees’ financial wellness and spill over into dissatisfaction with their benefits. If employees lose money, this may impact their participation in coming years. Forfeiture is an issue employers need to address as 2020 draws to an end and the clock runs out on this year’s FSA dollars.
When employees made their 2020 FSA elections, it’s highly unlikely anyone factored in the potential impact of a pandemic on their health care expenditures. As a result, FSA participation and contributions were in line with the previous few years. According to information on our Benefitsolver® system, about 15% of eligible employees contributed to a 2020 health care FSA, and the average contribution was $1,321.
As COVID-19 began to impact the nation, two developments potentially impacted employees’ use of their health care FSA.
- The first was included as part of the CARES Act, expanding the use of FSA money for over-the-counter medications as well as feminine care products. Notably, the extension does not apply to PPE such as disposable face masks which continue to be an eligible expense only with a prescription. However, there is an open petition sponsored by E-Health Commerce to make PPE an eligible expense.
- The second development was an IRS notice—Notice 2020-29—that permitted mid-year changes to Sec. 125 plans including FSAs.
With this guidance, employees would be able to change their contribution amount, disenroll from the plan if they had previously enrolled or enroll in the plan if they had waived. The changes would be retroactive to Jan. 1, but only if their employer chose to offer an enrollment opportunity.
For those employees whose employer pursued this remedy, there was no guarantee that any changes they made would benefit them. Employees could have disenrolled only to then face unforeseen out-of-pocket costs. Others might have decided to enroll or put in more dollars to help pay for elective procedures or dental work just to have appointments cancelled or deferred.
Peoples’ beliefs about COVID likely influenced any mid-year decisions they made about their FSA. Depending on where in the country someone lives and how they get their news, there have been vastly different experiences and perspectives on this pandemic. Add that the nation’s public health situation has evolved quickly and is constantly changing and making the “right” mid-year change may have been more a matter of luck than informed decision-making.
All this leaves some employees sitting on unused funds as Dec. 31 looms large.
Depending on your FSA plan design, now is the time to remind employees about any existing balance and what their options are. Even if they don’t have out-of-pocket costs related to deductibles or coinsurance, they can still stock up on certain essentials and avoid losing FSA dollars.
- For plans with a run-out provision. These employees literally have the most to lose. Since they only have until Dec. 31 to incur eligible expenses, employers should communicate about the upcoming deadline. Reinforce what is considered an eligible expense including over-the-counter medication and feminine care products so employees have a broader choice to spend down their dollars. Remind employees FSA dollars can also be used to cover the needs of eligible dependents.
Ideally, you should reach out to anyone with a balance early in the month and then again to employees who still have dollars to spend in the last two weeks of December.
- For plans with a carryover provision. These employees can still forfeit funds if they have more than $550 in their account when the year ends. So, again, it’s important to remind them of the carryover option and amount and reinforce that they should spend the balance of their FSA so they don’t lose it. Include information on eligible expenses, including the new rules around OTC medications and feminine care products.
Again, reaching out to those with a balance at two points during December is best practice and can help drive the message home.
- For plans with a grace period. These employees aren’t in a position of losing any funds at the end of the year but they still have a limited time to spend down their balance. For these employees, message about eligible expenses and the grace period deadline. Ideally, reach out again to anyone with a balance about a month before the grace period ends in 2021 to ensure there’s ample time—and another reminder—to use remaining funds before they are forfeited.
COVID-19 has created challenges for some employees with FSAs. They may have had more or fewer expenses in 2020, and they may have made changes mid-year that either helped or made matters worse. As a result, at a time when many people are concerned about health care costs and financial well-being forfeiting hard-earned FSA dollars may be more painful than in years past.
Employers can help address the potential for widespread forfeiture by proactively communicating to any employees with a balance to help support them in appropriately using any remaining funds appropriately. This addresses the needs of employees while serving as a tangible demonstration of the kind of workplace empathy that keeps employees engaged.
Learn more about the Holiday Stock Up Challenge - where you can help employees spend those FSA dollars, and help people in need this holiday season. Click below.