A late FSA surprise: What employers should do now

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Did you catch the U.S. Treasury’s recent announcement that the 2019 flexible spending account maximum is indexing up from $2,650 to $2,700 for 2019? While this 11th hour announcement is mostly good news, it offers challenges for certain employers sponsoring calendar-year FSA plans.

So should you make changes to your plan documents or extend enrollment because of the $50 increase?

Let’s review the background on the FSA maximum and then a quick roadmap through the possible challenges.

Brief FSA maximum history
Before the Affordable Care Act, employers could set their plan’s FSA maximum at any preferred level. Many employers selected $5,000, for example. Because there was no statutory maximum, we did not have to deal with annual indexing.

Via the ACA, Congress created a statutory FSA maximum, beginning in 2013, of $2,500, subject to annual indexing. We then saw:

  • 2014: no increase
  • 2015: increase to $2,550
  • 2016: no increase
  • 2017: increase to $2,600
  • 2018: increase to $2,650

However, because most FSA plan documents stated the annual maximum in the document as a specific dollar amount (e.g., $2,500), employers preferring to raise the maximum with the indexing tide had to amend their document each time the tide rose. For some employers, this amendment requirement extended to their wrap document and wrap summary plan description. These various amendments required administrative time and often an amendment fee. Thus, some of us, including yours truly, began recommending that employers who preferred to always accept the indexed FSA increase simply amend their documents to state the maximum as the statutory maximum (in words) and, thus, eliminate the need for future amendments and related fees.

Of course, what we didn’t account for in this recommendation was the possibility that Treasury would announce a FSA statutory maximum increase after most employers had already completed their annual FSA open enrollment.

Decision tree: What is the FSA maximum in your plan documents, including any wrap document?
1. If it is $2,650 or lower and you don’t want to raise it to $2,700 for 2019, your path is clear, and you can stop reading this primer.

2. If it is $2,650 or lower and you’d like to raise it to $2,700 for 2019, some considerations:

  • If you haven’t begun your open enrollment yet for 2019, your path is clear.
  • If you’ve completed or are in the middle of your open enrollment for 2019, it’s probably easiest to not raise the maximum for 2019 and revisit this option for 2020.

3. If it is stated in words in your document to mean the existing statutory maximum (this language varies between documents, but you’ll know it when you see it):

  • If you haven’t begun your open enrollment yet for 2019, your path is clear.
  • If you’ve completed or are in the middle of your open enrollment for 2019, you have some decisions to make: Would it be easiest to amend your documents to place your maximum at $2,650 (i.e., the maximum you just communicated to eligible participants during the open enrollment)? Or, do you have time and the inclination to reopen the open enrollment or extend it to allow participants to bump up to $2,700 for 2019? If this option is preferable, please double-check that your FSA third party administrator can accommodate this timing and quick pivot.

And, yes, all of this is quite the hassle for $50.

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