Although employer adoption of the new flexible spending account rollover allowance is low, employee engagement with flexible spending accounts is growing for employers who have adopted it. Benefit advisers can encourage employer adoption of the FSA rollover through increased education and communication.
In October 2013, the U.S. Department of Treasury announced a modification to its so-called FSA use-it-or-lose-it provision, allowing a rollover of up to $500 of unused FSA funds at the end of the plan year. Previously, unused employee FSA contributions were forfeited to the employer at the end of the plan year or grace period.
The FSA rollover policy change eliminates one of the most commonly-cited barriers to FSA adoption, namely consumers fears of losing their money. Mid-year plan enrollment results reveal double-digit FSA enrollment and contribution growth by employers that have embraced the rollover allowance, according to Waltham, Mass.-based Alegeus Technologies. Still, employers have been slow to adopt it.
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The timing of the policy change, at the end of the 2014 open enrollment season, was prohibitive for many employers to amend their plans and ensure the appropriate communication to employees in order to adopt the rollover allowance, Bob Natt, executive chairman of Alegeus says, adding that employers also need education and decision support to properly assess the benefits and potential impact of rollover.
Communication, he says, is key to helping employers understand the potential impact and evaluate whether to adopt the rollover.
Benefit brokers and advisers can play a big role in helping employers on both counts, Natt says.
Benefit advisers should present a comprehensive communication strategy for employers, he adds, to include:
- informational resources to explain rollover, including fact sheets, FAQs, etc.;
- comparison materials comparing the rollover versus the grace period;
- proactive communications to employers, including emails, letters, etc.;
- tax savings calculators to assess incremental tax savings (including FICA, Medicare, Medicaid, federal and state taxes);
- sample plan summary amendment language; and
- turnkey employee communication program plans and materials.
Educating employees
The key to engaging employees in their FSA is education, Natt adds.
Our own market research has demonstrated that there is still a significant education gap for FSAs and other account types in general, he says, adding that only 50% of current FSA account holders surveyed by the company could answer a basic proficiency test about their FSA accounts.
Even if employers choose to adopt rollover, it will not have an impact on consumer behavior unless employees are fully educated about the expanded FSA value proposition, Natt says.
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Most consumers, he adds, will incur at least some health care expenses during the plan year, and FSAs allow them to cover these costs with tax-advantaged dollars
Benefit advisers and employers can present a comprehensive communication strategy for employees to include:
- informational resources to explain FSAs in general, as well as how rollover works brochures, fact sheets, FAQs, videos, etc.;
- a two tier communication plan for 1) employees that have not previously enrolled in an FSA (to encourage them to do so), and 2) for current FSA enrollees (to encourage them to reassess their contribution amount);
- tax savings calculators;
- planning/contribution calculators; and
- turnkey communication materials to include emails, letters, etc.
Its still premature to know the full impact of the FSA rollover policy change for the 2015 open enrollment cycle, says Natt said. However, early indicators are showing that rollover can have a significant impact for those employers that adopt, driving double-digit incremental growth in both FSA enrollment and contributions.
