Now is the time of year that Flexible Spending Account ("FSA") participants begin thinking about spending down remaining FSA funds to avoid losing contributions during the transition to the next plan year. Of course, the employer's plan design affects when participants need to incur claims and how much the participant needs to spend down to avoid forfeiting funds. Plans that have implemented the Health FSA carryover allow participants to carry up to $500 of unused FSA funds from one plan year to the next (funds over $500 are forfeited). Plans that have implemented the Health FSA grace period allow participants an extra 2.5 months to incur claims after the plan year ends, but any funds remaining after the 2.5 month grace period are forfeited.
Currently, 75% of FSA plans that we administer have adopted the carryover feature. 18% of our FSA plans continue to opt for the grace period, and 7% of plans choose neither carryover nor grace period. Our analysis continues to show that the carryover feature provides the most savings to plan participants. Since the IRS approved the carryover option two years ago, employers have utilized the carryover feature as an effective tool to increase FSA participation and tax savings for both employees and employers.