Leaderboard

Here's my take-- https://www.newfront.com/blog/the-550-carryover-vs-the-grace-period Important Note for Health FSAs Moving from the Grace Period to the Carryover: Employers generally should not amend a plan that offers the grace period mid-year to convert to the carryover for the current plan year. Employees may have made their elections intending to utilize their health FSA balance during the grace period by combining a year-one and year-two election for a high-cost procedure (e.g., laser eye surgery). IRS guidance suggests that this approach may be subject to non-Code legal restraints, such as an ERISA breach of fiduciary duty claim. Any such amendment to move from the grace period to the carryover should be made in a manner that ensures employees are aware of the change when making their health FSA elections at open enrollment.

I would tend to say that's not necessary. I've had IRS audits for clients where they checked the 'No' box and never got a bond, where the auditor simply says "...and tell them to get a bond". Your situation is even better because you can tell the agent that a bond was obtained and the year in question is retroactively covered. We can usually get the agent to tell us why a certain plan was selected for audit and my experience has been that it was never because of a lack of a bond.

How did you do this? Was there some limit they exceeded?

Why do I get the feeling this is happening for hundreds and hundreds of plans...