Some in Congress want FSA use-or-lose rule eliminated

November 4, 2013

Several members of Congress are applauding Treasury's decision last week to allow a $500 annual rollover of unused medical flexible spending account (FSA) money. 

Rolling-puppyYou should find rolling over unused FSA money easier than this puppy finds simply rolling over!

Not surprisingly, they are Representatives and Senators who have introduced legislation to do the same thing.

And a bipartisan pair of lawmakers is still calling for the total elimination of the FSA use-it-or-lose-it rule.

As I noted both here on the ol' blog and over on Bankrate.com, if you have $500 or less in your medical FSA at the end of your workplace benefits year, you don't have to rush to spend it so that you don't lose it.

Under the new ruling, you now can roll that unspent limit over to the next benefit year.

Employers' choice: Remember, however, that the $500 rollover option still is at your boss' discretion.

Companies can allow workers with FSAs to carry the money forward.

Or companies can give workers a two-and-a-half month grace period (typically until March 15 for plans that are on calendar year) to spend all, not just $500, leftover FSA money.

Or they can do neither.

The Internal Revenue Service rules on the rollover or grace period are just permission for the companies to do one or the other, not requirements that they choose either.

Capitol Hill cheers for the change: Workers, companies and benefits industry representatives weren't the only ones pleased with the new rollover option. There also were cheers from Capitol Hill lawmakers about the change.

"I applaud Treasury for this modification that will help families in Connecticut and across the nation pay for the services and care they need," said Rep. John B. Larson (D-Conn.), a member of the tax-writing House Ways and Means Committee, in a statement about the new medical FSA carryover option.

Larson previously sponsored legislation to provide a similar carryover of unused benefits in health flexible spending arrangements or a cash-out of funds.

On the other side of the Hill, a bipartisan pair of Senators also praised the FSA change, with a caveat.

"Although Treasury's decision to loosen health flexible spending account rules is beneficial, 'use it or lose it' rules for the accounts should be eliminated entirely," said Sen. Benjamin L. Cardin (D-Md.) and Sen. Michael B. Enzi (R-Wyo.) in their own statement.

They both serve on the Senate Finance Committee and have introduced S. 966, Medical FSA Improvement Act of 2013, which would do away with the use-or-lose requirement.

Enzi and Cardin note that almost a dozen health-related associations have endorsed their bill, which they say would strengthen the FSA law's original intent.

The bill has been languishing in the Finance Committee, but the rollover rule change by Treasury and the IRS could jump start interest in the proposal.

Will a rollover option make you more inclined to open a medical FSA? Or would it take total removal of the use-it-or-lose-it rule for you to take advantage of this workplace benefit?

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