FSA savings utilization

How can we reduce yearend FSA surplus balances?

Authored by Bukaty Companies on Feb 18, 2025 1:56:03 PM

The “use-it-or-lose-it” nature of flexible spending accounts (FSAs) results, per average participant, in more than $400 of forfeited funds at the end of a plan year. The IRS gives plan sponsors the flexibility to include several plan provisions that allow employees more opportunities to access FSA funds. Implementing one of these options gives employees more time to exhaust their FSA funds and increases appreciation for the tax-savings benefit.

Employers should evaluate the allowable extensions to include in their FSA offering. Any off the following options can optimize FSA reimbursements:

  • carryover amounts - allows employees to roll over a certain amount of funds to the next year,
  • runout period - gives employees up to an additional 90 days past the end of the plan year to submit FSA-eligible claims or receipts, or
  • grace period - provides employees the opportunity to use their prior-year FSA funds for an additional two and a half months into the new year.    

It's important to note that a carryover allowance and a grace period cannot be offered concurrently, only one can be offered at a time.

If an extension is offered but employees are undereducated, funds will remain underutilized. Employers currently allowing an FSA deadline extension should communicate upcoming deadlines and fund expirations to their employees. For plans allowing a carryover, the maximum amount in 2025 is $660. Plans with a grace period should notify employees that 2024 funds may be used until March 15, 2025.  

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