Benefit News

New California Notice Requirement Regarding FSA Balances

September 30, 2019

The state of California recently signed into law AB 1554, requiring California employers who sponsor flexible spending account (FSA) arrangements to send out at least two communications notifying participants of any deadline to withdraw funds before the end of the plan year, or else they will be forfeited. Existing Federal law currently mandates only a single form of notification or reminder of the deadline to apply for reimbursement.

AB 1554 adds Section 2810.7 to the California Labor Code and becomes effective January 1, 2020. It applies to those benefit programs in which participant funds can be forfeited if not used by the end of the plan year, commonly referred to as the “use it or lose it rule”. This includes, but is not necessarily limited to, health care FSAs, dependent care FSAs, and adoption assistance plans.

Overview

Under current Federal law and regulations, if an employee doesn’t claim all his or her monies in their FSA prior to the end of the plan year (plus run-out period, grace period or carryover provision), the remaining funds are forfeited to the employer.

Furthermore, Federal law currently requires employers to provide only a single form of notice reminding the participant of the reimbursement deadline. AB 1554 expands this requirement to require the notice to be by two different forms, one of which could be electronic. This includes, but is not limited to the following:

  • Electronic mail communication
  • Telephone communication
  • Text message notification
  • Postal mail notification
  • In-person notification

Next Steps

This law specifically applies to employers. In particular, those employers who self-administer FSAs and other benefit plans in which participant funds may be forfeited if not timely utilized, may need to adopt new procedures to comply with AB 1554. Those employers that contract with third parties to administer their FSA programs should confirm that the third party will undertake this additional responsibility as part of their standard services.

For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or inquiries@burnhambenefits.com.


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