June 28, 2005
The Federal Office of Personnel Management (OPM) has released information to its
millions of Federal employees that a 2 ½ month grace period will be added to both
their health and dependent care spending accounts. The approximately 163,000 Federal
workers currently enrolled in spending accounts will now have until March 15, 2006 to
incur expenses for the current 2005 plan year. They will have until May 31, 2006 to
submit their claims. Formerly, the run out period for the calendar year plan was April 30.
Employers of all varieties are considering if, when and how to implement to recent
Treasury and IRS announcement to allow a “grace period” to incur expenses
into the next plan year.
IRS Notice 2005-42
permits a 2 ½ month extension for incurred expenses, but did not eliminate
the “use-it or lose-it” rule. For those pondering how they might set up
their grace period programs, (see June Flex Reporter, “
Carrying on about the Carryover
”), it is educational to see that OPM has decided on the simple – “first
in, first out” approach to 2006 expenses. If there are leftover 2005 funds,
those dollars will be used first for any expenses, then 2006 funds will be used when 2005
dollars are exhauste
OPM also announced that their plan’s annual limit for health flexible spending accounts
will be raised from $4,000 to $5,000 for 2006.
Employers and service providers will find their communications illuminating.
The announcements are posted on the OPM website at:
https://www.fsafeds.com/fsafeds/FSA_grace_period_faq.asp and
https://www.fsafeds.com/fsafeds/news.asp#NewEnhancements
A full discussion will be held at the August 17-19, 2005 Symposium in Reno,
Nevada! Don’t forget to register by June 30 for your discount Early Bird Registration!
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