Will OPM allow flexible-spending rollovers?

Monday - 12/30/2013, 1:06pm EST

For many federal employees, the end of the year is a good time to take a closer look at their flexible-spending accounts.

Feds get just a three-month grace period at the start of the year to use any leftover funds. Otherwise, under the federal "use it or lose it" rules, any unspent money employees set aside last year to pay for out-of-pocket health costs, such as prescriptions or co-pays, is forfeited.

But a group of senators from states surrounding the Washington, D.C., area, wants to change that.

Sen. Ben Cardin (D-Md.) along with Sens. Barbara Mikulski (D-Md.), Mark Warner (D- Va.) and Tim Kaine (D-Va.) wrote to the head of the Office of Personnel Management, requesting the agency implement new regulations that would allow federal employees to roll over as much as $500 in unused funds from year to year.

In 2012, some 30,940 federal employees forfeited an average of $392 each in FSA contributions because of the "use it or lose it" rules, according to the senators' Dec. 19 letter to OPM Director Katherine Archuleta.

"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," the letter stated.

All told, 55 senators — including every Democrat and 2 Independents — signed on to the letter.

The Federal Flexible Spending Account Program, known FSAFEDS, allows workers to set aside as much as $2,500 of their pay, before taxes, to pay for out-of-pocket medical expenses. For many years, however, workers were barred from carrying funds over from year to year. However, in October, the Treasury Department issued new rules giving U.S. employers the go-ahead to allow workers to roll over as much as $500 in unused spends.

Still, it's up to each individual employer to decide whether to allow the carryover provision. According to the senators' letter, OPM has still not decided yet whether to extend the option to the federal FSA program this year. OPM is still reviewing the letter and has not yet responded.

About 322,700 federal employees signed up for health FSAs in 2012 with an average of $2,050 per account, according to the letter.

Federal employees, it should be noted, do have the benefit of a grace period, which helps participants avoid having to forfeit funds they've already deposited into their accounts. The grace period extends the deadline to use funds from Jan. 1 to March 15, but blocks participants from using current year funding to pay for the prior year's expenses.

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