Use it or lose it rule modified

[Bill Presson]

Here's the notice.

http://www.irs.gov/pub/irs-drop/n-13-71.pdf

Why can't the Service issue anything without complicating other things?

Participants can now roll over up to $500 to a new year, but the exceptions and restrictions make it almost useless.

[Guest BenefitsAnnie]

I've read the rule (thanks for the link!) and I don't see the "exceptions and restrictions" to which you refer. In fact, it seems like a no-brainer to me in terms of having no downside to the employer or the employee other than the existing downside to the employer of having an employee leave prior to paying in the full amount of his or her FSA election. Am I missing something? Is there a downside?

[GMK]

can't speak for Mr. Presson, but I found this

http://news.leavitt.com/health-care-reform/irs-changes-use-lose-rule-allow-500-annual-carryover-health-fsas/

which says that "plans that currently have a grace period for the 2013 plan year (allowing reimbursement in 2014) might not be able to implement the carryover provision until the 2015 plan year."

"a plan that currently includes a grace period, but wants to switch to allowing a carryover instead, must be amended to eliminate the grace period by the end of 2013."

but this "may be subject to non-Code legal constraints.” I'm guessing that these non-Code constraints are problematic.

[QDROphile]

The carry over will interfere with HSA eligibility unless the FSA is a special purpose FSA.

[Bill Presson]

The biggest issue for our plans is the grace period exception. So now we're having to spend a lot of time explaining to participants why we really don't recommend doing this for 2013; too many participants might have planned for the grace period to use the rest of their money.

Then we'll have to decide what to do for 2014.

Also hearing about a potential legal challenge that the IRS has unilaterally created deferred compensation where they weren't allowed.

For anyone making this change for 2013, how are the software changes getting done?

[Chaz]

Also hearing about a potential legal challenge that the IRS has unilaterally created deferred compensation where they weren't allowed.

I'd like to hear more about this legal challenge, if you or anyone else has some info.

[Bill Presson]

If I see anything in print, I'll let you know. So far it's all been hearsay.

[TPApril]

Situation: Current Plan Sponsor does not allow expenses after 12/31. Not interested in new $500 carryover law, but with this new ruling, will now consider extended spending period (instead of $500 carryover) effective only with 2014 plan year because of perceived extra admin with $500 carryover rule, especially applying it to 2013. I'm not seeing what the extra admin is for current or future years.

[bcspace]

For anyone making this change for 2013, how are the software changes getting done?

Depends on the software. We already had a CarryOver amount field available when entering elections so we just activate it for this particular benefit.