In an effort to help both employers and employees cope with rising health care and dependent care costs, the U.S. Congress and the Internal Revenue Service (IRS) created flexible spending account (FSA) benefit plans. FSAs offer employees a way to set aside tax-free dollars to pay for a variety of eligible health care and dependent care expenses. 

Best practices for promoting FSA participation and savings

In an effort to help both employers and employees cope with rising health care and dependent care costs, the U.S. Congress and the Internal Revenue Service (IRS) created flexible spending account (FSA) benefit plans. FSAs offer employees a way to set aside tax-free dollars to pay for a variety of eligible health care and dependent care expenses. The reduced taxable income means employees can save an average of $30 for every $100 they spend for necessities such as medicines, eyeglasses, doctor or dental visits, day care and adult care expenses. FSAs also reduce employer state and FICA taxes, resulting in a savings of approximately 7 to 10 percent. The reduced employer tax burden can help offset the cost of administering the program.

Some employees still shy away from participation in FSAs, however, because of what they perceive to be problematic FSA plan characteristics. Some FSA challenges include a "use it or lose it" requirement to spend FSA contributions within the coverage period (typically 12 months). If money is left over in the FSA account at the end of the year, it is forfeited. If employees lose their jobs unexpectedly and do not elect to continue their employer benefits via COBRA, they could lose all or part of their FSA contributions paid up to their termination date. Some purchases made with FSA funds can require detailed receipt substantiation before being approved as an FSA purchase. 

A risk for employers remains that employees can use their entire annual election amounts prior to the money being deposited into their accounts. When employees leave the company prior to fully funding their FSA accounts, the employer will be unable to collect the funds. 

For any employer -- including Ceridian -- getting the most benefit out of an FSA involves communicating the plan benefits to employees to encourage participation. 

"We help many companies implement and manage very effective FSA plans. Ceridian not only has the KnowHow to help employers offer their employees a cost-effective, well-managed FSA plan, but we also have the expertise to help companies implement and pay for the kind of plan that works best for them. We know because we have used our own experiences to bring greater value to our clients, and with dramatic results."

Bart Valdez, executive vice president, general manager, Ceridian Benefits Services


Over the last decade, Ceridian has made efforts to simplify and promote the advantages of Ceridian employees participating in its FSAs. Recognizing that maximum benefit comes from maximum participation, Ceridian has used a variety of best practices and business processes to improve FSA participation. The result has been a steady increase in Ceridian employee FSA usage to what is an industry-leading FSA participation rate of more than 40 percent. 

  • As early as 2001, Ceridian had an FSA participation rate of 17 percent with an average funding election of $866.
  • By 2010, FSA participation and average election amounts more than doubled to 42.4 percent participation with an average funding election of $1,610. These participation levels and funding are significantly higher than industry averages.
  • Employer FICA savings of 7 percent to 10 percent help offset the plan's administrative costs, as well as employee savings of approximately 30 percent on certain health care expenses.
  • Industry best practices helped increase participation rates to industry-leading percentages. 
  • From 2007 to 2008, a significant increase in FSA participation (enrollment and election amounts) helped mitigate the employee impact due to the changes made to Ceridian's medical plans.
  • Ceridian's FSA plan is recognized by employees as a beneficial employer-differentiating benefit.
Improving Ceridian's FSA Plan 
Ceridian achieved its notable FSA participation by implementing several plan improvements. The primary goal of these improvements was to create a more compelling benefit, especially from an employee's perspective. Some of the best practices Ceridian used included: 
  • The creation of effective employee communications describing FSA plan benefits.
  • Promoting the use of the FSA Health Care Calculator and related benefits tools such as budgeting worksheets. The FSA Health Care Calculator helps employees quantify the potential benefits of FSAs.
  • The introduction of the Ceridian Benefits Card, an FSA debit card. By using the card, Ceridian FSA participants can pay for eligible FSA expenses much in the same way as using other debit or credit cards.
  • Leveraging IRS regulatory changes to improve the plan. For example, Ceridian implemented a 14-1/2 month grace period, providing 14-1/2 months to use 12 months' worth of contributions.
  • Introducing a series of new FSA features. To make the FSA reimbursement and account management experience easier, Ceridian offered a more intuitive Web experience, online claim submission, 24/7 employee access to FSA accounts, etc.
Ceridian believes an effective benefits education program driven by best practices has become a top cost-management strategy focusing on productivity, workforce morale and talent retention.