With holiday cards starting to appear in our company’s mailbox and our local New England towns staying bright at night thanks to their Holiday-light displays, one thing is clear — December of 2012 is here!
While many people thought might look forward to this month for periods of relaxation and/or fun, employers must pay attention to some very important changes in regards to Health Care. Today, I want to talk about one important change that affects FSA plans.
New FSA Limit Rule Effective in 2013
For the first time, there will now be a legal limit on employees’ health FSA contributions.
The Affordable Care Act (ACA) imposes a $2,500 limit on salary reduction contributions to a health flexible spending account (FSA) offered under a cafeteria plan. While employers will still be able to set their own limits, they will not be able to exceed the $2,500 amount either.
The limit applies on a plan year basis and is effective for plan years beginning after Dec. 31, 2012. For a calendar year plan, the limit will become effective on Jan. 1, 2013.
This limit also effects non-calendar year plans. As an example, a health FSA with a July 1 plan year will not need to comply with ACA’s limit until the plan year beginning July 1, 2013.
Key Items to Keep In Mind
To help answer some of the frequently asked questions that we have heard regarding this law, we have put together the following materials. We hope that you find it helpful.
Q. Can I change my FSA’s play year to delay the application of the $2,500 limit?
A. The answer to that question is no. A health FSA’s plan year may only be changed for a valid business purpose. However, according to the IRS, changing the plan year in an effort to delay being impacted by the $2,500 limit will not qualify as a valid business purpose.
Q. How does this limit families that benefit from FSA funds?
A. The health FSA limit applies on an employee-by-employee basis. Each family member who is eligible to participate in their own FSA will have a separate limit.
Q. Are other employer contributions impacted by this limit?
A. The ACA limit is on FSA salary reduction contributions and not on other employer contributions. For example, the limit does not apply to to contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).
Q. What does the law say about plan amendments?
A. A cafeteria plan with a health FSA must be amended to include ACA’s $2,500 limit.
Cafeteria plans with health FSAs must be amended for ACA’s $2,500 limit on or before Dec. 31, 2014. To take advantage of the delayed amendment deadline, the cafeteria plan must comply in operation with ACA’s limit for health FSAs for plan years beginning after Dec. 31, 2012.
Additional Information on FSA Limits
We hope that you find this material helpful as you seek to understand and take action to comply with changes required by the Affordable Care Act.
The IRS put out a great resource on the FSA limit rule in this document.
But if you have any additional questions on how the FSA limits may impact your health care plans — as well as what other options might be available to you — please contact a CBG Benefits representative today.
P.S. Yes, there certainly are a lot of complexities to the Affordable Care Act that we all need to get our hands around. Please stay tuned to CBG Benefits blog for more information — but of course, don’t forget to enjoy this holiday season with you family, friends, and co-workers!