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Employers on Non-Calendar Fiscal Years Seek FSA Mandate Relief

Under a provision in the Patient Protection and Affordable Care Act, which goes into effect on Jan. 1, 2013, the maximum annual contribution employees can make to their FSAs is $2,500.

May 1, 2012
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An employer benefits lobbying group is asking the Treasury Department for transitional regulatory relief to ensure that participants in flexible spending accounts with non-calendar years can make the maximum legal contributions to their FSAs during the first year a health care reform law mandated FSA cutback goes into effect.

Under that provision in the Patient Protection and Affordable Care Act, which goes into effect on Jan. 1, 2013, the maximum annual contribution employees can make to their FSAs is $2,500. Under current law, there is no annual limit, though employers typically limit annual contributions to between $4,000 and $5,000.

Without regulatory relief, the new limitation would have an "effect of causing health plan FSAs that operate on a non-calendar-year basis to have to comply with the limitation earlier than the statutory effective date," notes the Washington-based American Benefits Council.

In a letter sent last week to the Treasury Department, ABC cites the example of an employee in an FSA with a fiscal year that begins on July 1, 2012. The employee elects to contribute $3,600 during that plan year, making contributions of $300 a month from July 1, 2012, through June 30, 2013. FSAs typically are designed so employees make level contributions during the plan year.

If the employee elects to contribute $2,500 for the next plan year starting July 1, 2013, the employee would violate the $2,500 annual limitation for 2013, ABC notes.

That is because the employee would have contributed $300 a month for the first six months of 2013 and $208.33 for the last six months of 2013. That total contribution of $3,050 would violate the $2,500 statutory limit for 2013.

To prevent that from happening, ABC is asking Treasury to provide transition relief to make clear that FSAs with non-calendar years be exempt from the $2,500 cap on FSA contributions for plan years that begin prior to Jan. 1, 2013.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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