Federal Workers Should Benefit from Flexible Spending Account Changes, Lawmakers Say

Senate Democrats are urging the Office of Personnel Management to allow federal employees to carry over $500 of their unused flexible spending account funds into 2014.

The Internal Revenue Service on Oct. 31 issued a change to the “use or lose” policy for health FSAs, giving employers the option to allow employees with FSAs to carry over up to $500 in unused balances at the end of the 2013. Employers also can opt to offer a grace period in which to use any available unused funds next year, but cannot offer both benefits. OPM decides whether federal workers are able to roll over the money, but has not yet weighed in publicly. An OPM spokesman said the agency would respond to the lawmakers’ letter “after it has been thoroughly reviewed.”

Before the IRS made the change, all employees with FSAs had to spend the remaining balance in their accounts before the end of the plan year, or forfeit funds. In 2012, approximately 322,700 federal workers had flexible spending accounts with an average election amount of $2,050. Nearly 31,000 of those employees forfeited an average of $392 each in contributions because of the use-or-lose rule.

Federal employees as well as workers in other sectors can use flexible spending accounts, which allow them to set aside a portion of their income before taxes, to cover out-of-pocket expenses such as health care co-payments, and dental and eye care. Employees can set aside up to $2,500 annually in pre-tax money for FSAs.

“It is unreasonable to expect health FSA participants to accurately forecast their out-of-pocket medical expenses a year in advance, and it is unfair to penalize them at the end of the plan year should their estimates prove to be inaccurate,” wrote 53 Democratic senators and two Independents in a letter this week to OPM Director Katherine Archuleta. “We urge you to provide this benefit to federal employees without delay.” 

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