Agencies urged to cover flexible spending account fees

Federal employees have until the end of next week to sign up for new health care, child care and elder care benefits, the Office of Personnel Management has announced. The office is also urging federal agencies to pick up the administrative costs of the new benefits, rather than pass those costs on to employees.

Enrollment for the new flexible spending accounts program was originally set to end this Friday, but OPM has extended the sign-up deadline until June 27. The change gives employees more time to decide whether they want to set up health care or dependent care spending accounts this year. OPM had suspended enrollment until this week while reviewing the administrative cost issue.

Flexible spending accounts let employees set aside pre-tax dollars for certain expenses, cutting employees' tax bills. Employees can set aside up to $3,000 in health care accounts to cover expenses not already covered by regular health insurance, such as co-payments, deductibles, laser eye surgery and dental work. Employees can set aside up to $5,000 in dependent care accounts for child care and elder care costs. Elder care includes nursing care for elderly parents who rely on the account holder.

The money in the accounts is not taxed. If employees sign up for flexible spending accounts by June 27 this year, they must use the money by the end of 2003, though claims can be submitted through April 2004.

The administrative costs of the accounts are $4 per month for a health care account and 1.5 percent of the amount in a dependent care account. Employees have to pay those costs unless their agencies decide to pick up the costs.

On Friday, OPM Director Kay Coles James informed agency heads that they are permitted to cover the administrative costs using savings from payroll expenses. Agencies will save money when employees set up flexible spending accounts because the agencies will not have to pay the employer portion of some taxes.

"It is important that federal employees be allowed to keep their hard-earned money," James said. "I strongly encourage you to pay the modest … fees on behalf of your employees. It's the right thing to do. You may wish to note that our analysis has shown that even after paying fees, agencies will still accrue savings."

Agency leaders must inform OPM by June 27 whether they will cover the administrative fees.

But employees will have to decide by then whether to set up accounts this year. Even if agencies don't cover the administrative fees, OPM analyses have found that employees will still save money because of the tax reductions.

Most agencies will begin deducting money from participants' paychecks in July. But the Defense Department, Energy Department, White House, NASA, National Science Foundation and the National Security Agency won't begin deducting money until September, and the Navy Sealift Command won't begin deductions until August. Employees at those agencies still must sign up for accounts by the end of next week.

The Veterans Affairs Department and the Government Printing Office won't begin offering the benefit until next year, so employees at those agencies cannot sign up for accounts this year.

All employees will be able to sign up for 2004 accounts during an open season this fall.