Passive FSA Elections

[Guest jjr12]

Can someone provide the IRC Section or Reg citing that provides passive (e.g., current year elections rollover to next year) FSA elections are prohibited? I read in IRS Publication 969 that "At the beginning of the plan year, you must designate how much you want to contribute." What I'm unable to locate is the citing where this cannot be a passive designation.

Thank you for your help.

[Bob R]

I'm not aware of anything preventing this. However, it's not something you see in FSA plans because of the use-it-or-lose-it rules. If someone forgets to change his/her election, they are stuck for the entire year. So, this type of "evergreen" election is generally not viewed as a good idea when it comes to FSAs. For insured benefits, it's not as risky.

[QDROphile]

If enough people chime in that evergreen elections or automatic amounts are simply a really bad idea, will that do it for you?

[Guest ehs]

It is a bad idea. However, I have one client who does practice roll overs of FSA elections. The first year was difficult because the "standard" had not been established and some people fell through the cracks, because they not only did not understand (i.e., read) the policy, but also failed to understand (i.e., read) the policy that stated if you wanted to make a new election (i.e., change your election) you had to complete a new election form. They have had no problems since, we are in our 10th year. It is all about communication. I'd still say, not recommended.