By Beth Pinsker
NEW YORK, Nov 11 (Reuters) - The U.S. Treasury has removedthe "use-it-or-lose it" restriction of flexible spendingaccounts, but it is not clear whether the change will encouragemore workers to take advantage of this way to stash away moneytax-free to pay for healthcare expenses.
Right now, less than a quarter of U.S. workers have FSAs,according to Mercer, a leading benefits consultant. A majorreason is that they run the risk of forfeiting the money theyset aside unless they spend it in the same calendar year.
But in late October, the Treasury Department announced a new$500 rollover option that companies can adopt voluntarily.
Employers are eager to offer rollover plans because leftoverFSA money has been a sore point with employees for years, saysSteve Jackson, senior vice president of third-party benefitsadministrator PrimePay.
Overall, some 14 million workers participate in FSA plans.Employees at big companies typically forfeit $60 per person intheir FSA each year, says Mercer consultant Chris Renz. Atsmaller companies, like the ones on PrimePay's roster, the rateis closer to $70.
One drawback to participation in the rollover option,though: It cannot be used in conjunction with the "grace period"that many employers offer to allow plan participants to spendleftover FSA money in the first quarter of the following year.
Nevertheless, benefits administrators expect a majority ofcompanies to jump on board by 2015. They also expect an increasein the number of employees who participate and the amounts theycontribute in pretax dollars.
It is open enrollment season for benefits, and manycompanies are asking workers to decide how much they willcontribute during 2014 to their FSAs, up to the $2,500 limit.Since the rule change was just announced, employees may not beable to find out in time if their company is going to adopt arollover program, and when it will be effective.
"When I saw the bulletin, I thought great, but not now,"says Shannon Swanson-Arend, director of benefits and wellnessfor New Brighton, Minnesota-based APi Group Inc, parent of 40fire-protection, industrial and construction companies.
The timing makes it hard to lure workers who were afraid oflosing FSA money in the past. Indeed, about one in four do leavemoney on the table currently, says Alegeus Technologies, thelargest provider of benefit administration services.
Benefits administrator HR Simplified found one client withabout 9,000 employees had nearly half of those with an FSA losemoney last year. As 94 percent of them lost less than $500, itshows the potential value of a rollover.
The company is now considering adopting the rollover,perhaps even for the 2013 calendar year, which just has twomonths left, says HR Simplified President Mike Melnychuk.
If your employer adopts a rollover for 2013, be prepared tospend your FSA account down to $500 fast, the way you would ifyou were up against the grace period deadline, says Mercer'sRenz. The good news, he adds, is that this might be the lasttime you rush around buying extra eyeglasses to use up yourfunds before you lose them.
WAIT AND SEE
Most companies will probably wait to add the rollover in2014 or later. Industry experts expect that many employees canthen be enticed to contribute to an FSA, since up to $500 wouldthen be essentially risk-free. (One potential hitch, however, isthat if workers build up an account balance and then leave acompany, they need to spend all the money or lose it.)
APi Group, an HR Simplified client, says it might not makethe rollover change until 2015, if at all. First, the companyplans to look at the spending patterns of workers to see if agrace period is more advantageous.
Another factor in deciding whether to implement a rollovermay be how the company previously dealt with leftover FSA money,which it can neither take as a profit nor give back to theemployee.
For a company with just a few dozen employees, the funds donot amount to much, but for one with 10,000 workers, the unusedmoney may total more than $500,000, according to experts.Companies typically use it to cover unspecified "administrativecosts."
Helen Darling, president of the National Business Group onHealth trade group, says some employers put the money back intothe general pool to help offset healthcare premium increases.
At APi, however, the amount left over was negligible. "Wewouldn't have a budget impact at all," says Swanson-Arend.
Companies are not worried about losing access to the funds,says Joe Jackson, chief executive officer of benefitsadministrator WageWorks Inc. When he started thelobbying effort a few years ago to get the rollover, he polledcompanies. Their unanimous response: "We don't like getting thatmoney."
For a large company, Renz says this is because even $600,000in leftover FSA does not do a lot to bend the benefits costcurve.
"It's an employee relations issue," he says. "I don't careif you lose $5 or $500, it's going to leave a bad taste in yourmouth."