By Jerry Geisel, Crain News Service
WASHINGTON (May. 20, 2013) — Legislation introduced in the Senate would end a decades-old Internal Revenue Service (IRS) rule that requires the forfeiture of unused health care flexible spending account contributions.
Under that 1984 rule—often called the "use it or lose it" rule — unused FSA contributions must be forfeited at the end of a plan year. Under a 2005 IRS modification, contributions that remain at the end of a plan year can be used to pay for expenses incurred during the first two and one-half months of the next plan year.
Under S. 966, which was introduced May 15 by Sens. Ben Cardin, D-Md., and Mike Enzi, R-Wyo., employers could return as taxable cash FSA contributions that remain in an account at the end of a plan year.
"In an economy where every penny counts, it makes little sense for employees who miscalculate their anticipated yearly out-of-pocket health care expenditures at the beginning of a plan year to have to forfeit those funds to their employer at the end of the year, if unspent," Sen. Cardin said in a statement.
A provision in the 2010 health care reform law that generally took effect at the start of this year caps the maximum annual contribution that employees can make to FSAs at $2,500. Previously, there was no cap, though employers typically limited FSA contributions to $4,000 to $5,000 a year.
This report appeared in Business Insurance magazine, a Chicago-based sister publication of Tire Business.