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Employee forfeitures of FSA funds on the rise

Ceridian estimates that 25 percent of our 400,000 Flexible Spending Account participants will forfeit an average of $250 of the personal funds they contributed to their pre-tax health reimbursement plans in 2006.

Pre-tax saving through FSAs can save families up to 30-40 percent of the costs of out-of-pocket medical expenses. More than 90,000 participants in Ceridian's FSA plans who contributed pre-tax dollars from their paychecks to these accounts will forfeit unspent funds under the "use it lose it" rules currently in place around these plans.

Forfeitures could reach $1 billion nationally
Ceridian estimates that on a national level more than five million employees and their families participate in FSA plans -- contributing more than $5 billion per year in pre-tax dollars. Assuming an average contribution of some $1,000 per participant, this means families are forfeiting at least $1 billion per year in unspent health care flex-dollars.

"We have the greatest respect for the people who participate in the plans we serve. But too many are wasting their own money and missing an opportunity to better manage their health or the health of their families," said Ceridian Benefits Services Senior Vice President John Shade. "There are a myriad of options for people to take care of their health with these funds. With some good discipline and planning, they will not only improve their health, but avoid leaving their own money on the table."

Many companies have policies that allow employees to receive reimbursement if they submit claims within 90 days of the end of their plan years. Additionally, a small percentage of employers have implemented a 2005 U.S. Treasury Department regulation that allows them to offer an additional 15-week grace period to their employees. During a grace period, employees may incur expenses and be reimbursed from their prior plan year contributions. However, employees who miss either the year-end deadline or the grace period deadline to incur eligible health care expenses, and do not submit their claims by their company's deadline, have no recourse to claim their unused personal funds.

"The grace period was a first small step towards the broader reform that is needed around FSAs," Said Ceridian Vice President of Government Relations & HR Policy Jim O'Connell. "Congress is looking at several options that would allow employees to avoid forfeiting all unused FSA funds. Options being considered include allowing employees to carry-forward a portion of unspent FSA dollars or roll them over to a 401(k). The U.S. House of Representatives approved a $500 FSA carry-forward in 2006 and Rep. Carolyn McCarthy (D-NY) in early 2007 introduced HR 298, a similar carry-forward bill, which enjoys support. Any or all of these reforms would be big steps forward in modifying the onerous 'use it or lose it' policy. True, President Bush has proposed a revolutionary change in the tax treatment of employer-provided health coverage, including repealing Sec 125 pre-tax saving for medical expenses, but that idea has met Capitol Hill opposition. "

Helpful hints on how to avoid forfeiting FSA dollars
Ceridian Benefits Services is actively encouraging families to begin thinking now about how to avoid forfeiting their 2007 FSA dollars. The following is a list of tips and suggestions you can use when talking to employees about their FSA accounts:

• Make the most out of your dollars - Many common over-the-counter medicines and drugs are reimbursable, including aspirin and other pain relievers, cold and flu remedies, and antacids. Most medical equipment and supplies can also be reimbursed, including band-aids, first aid creams, crutches and walkers, pill cutters and organizers, and thermometers.
• Commonly overlooked expenses - Many employees are not aware of or forget to submit claims for mileage expenses related to medical care, which can be reimbursed at 20 cents per mile in 2007. Also consider expenses for the upkeep of medical equipment, such as batteries for hearing aids and cleaning solution for contact lenses.
• An ounce of prevention - Preventive care is a great way to invest in your employees' health. Annual check ups, routine prenatal and well-child care, and child and adult immunizations such as flu shots are all practical ideas.
• Quit Smoking - Smoking cessation program fees are eligible, as are patches, gum and other products designed to help smokers quit.
• The FSA Diet - Weight-loss program fees (Jenny Craig, Weight Watchers, etc.) that are supported with a physician's statement are eligible, although associated food costs are not. Mileage to and from the program's location is also eligible.