IRS Provides Additional Flexibility For Flexible Spending Arrangement Use-or-Lose Rules

On October 31, the Internal Revenue Service (IRS) released Notice 2013-71, which modifies the long-standing "use-it-or-lose-it" rule for health flexible spending account plans ("FSAs"). Under the rule, any unused contributions remaining at the end of the plan year or grace period, if offered, are forfeited. The modification gives employers the option of amending their FSA plans to allow employees to carry over up to $500 each plan year to their FSA for the following plan year. While this guidance provides welcome additional flexibility for employers, there are considerations employers should weigh before deciding whether to amend their plans to adopt the carryover.

Description of Rule Change