News from the IRS on 2013 FSA Max’s

IRS has announced that it will enforce the $2,500 health FSA annual maximum – established under the health care reform law and set to begin in 2013 – as a “plan year” maximum rather than a calendar year maximum. This is terrific news for employers offering health FSAs on an “off-year” basis (i.e., anything other than a standard 1/1 – 12/31 calendar year), because it means that the maximum will not go into effect for these plans until the plan year that begins in 2013. (The original notice can be found here.)
Example: XYZ Company offers a health FSA to its employees running from July 1 – June 30 each year with a $3,000 maximum. XYZ can continue with its $3,000 maximum for the entire July 1, 2012 – June 30, 2013 plan year. The $2,500 maximum will not go into effect until the July 1, 2013 – June 30, 2014 plan year.
This is a welcome surprise, but a surprise nonetheless, and we are aware that many AmeriFlex clients with non-calendar year plan years have already made proactive arrangements for those plans in anticipation of a much stricter application of the $2,500 limit on January 1, 2013. In many cases, these employers may, if they choose, revert to their original plan designs. Any employer considering such a reversion should weigh the benefits against any potential issues with regard to its employees and plan administration, particularly with regard to members already locked into Open Enrollment elections for the 2012 into 2013 plan year, which are inherently irrevocable. There is no requirement that an employer who has already made arrangements for a January 1, 2013 application of the rule now revert to its original plan design. It is perfectly acceptable, and, in some cases, it may even be advisable, to continue with the course already chosen.

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