Changing Spending Account Limit.

[Guest Sara H]

We have a client who has a medical spending account limit of $2000. They have asked about increasing the limit because an employee wants to be able to defer more than $2000. Is there anything that states the maximum dollar amount that the employer can allow an employee to defer for a MSA like the dependent care's $5000 or is it any dollar amount that the employer chooses?

Also, if they want to change this dollar amount mid-year, do they have to do a re-enrollment to allow all employees to defer more money or should they only make this kind of a change at the beginning of a plan year?

[Lisa Hand]

Are you talking about Medical FSA? flexible Spendign Account or Arrangment. An MSA is a different type of benefit.

[Guest Sara H]

Sorry! It is a Flexible Spending Account.

[Lisa Hand]

There is no federal limitation set for Medical FSAs. That limit, if one is put on the benefit, is set by the employer in their plan documents. While the employer has full ability to make changes, it is best to make any changes prior to the start of the next plan year, so information on it can be communicated during open enrollment.

[Guest cmpeery]

In the Flexible Benefits Answer Book, the answer seems to be 5 times what the medical premium would be, so if the medical premium is $1000 annually, the maximum FSA salary reduction would be $5000. This is under proposed regulation 1.125-2. (Since its proposed, its not law yet, but its a pretty definite guideline.)

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C.M.Peery

[Kirk Maldonado]

I prepared a cafeteria plan for a client with a $15,000 per year maximum contribution to the health care flexible spending account.

[Lisa Hand]

CM - what section of 1.125-2 are you refering to?

[Joe Priselac]

cmpeery,

You are misconstruing what the regulation is stating. Lisa and Kirk are correct in that there is no upper limit to what a plan sponsor could state in their plan. I once did a plan with a $25,000 limit, highly unusual, but still allowed. The medical premiums that are mentioned in the cite you gave refer to employee contributions to the FSA. The theoretical position that the IRS takes is that health FSAs are self-funded medical plans.The contributions are considered premiums paid for the coverage.A participant can not get more than five times their premium in reimbursement. Example: annual employee contribution to health FSA is $1,000. The plan could not provide a reimbursement benefit level of more than $5,000 for that employee. We administer plans that "magnify" the benefit but not more than the 500% limitation. There is no connection between their insured medical plan premiums and this rule. I hope this clears things up a little.