A flexible approach to spending accounts

This blog contains information sourced from RTO Benefits’ comprehensive look at flexible spending accounts. 

Flexible spending accounts (FSAs) provide a win-win opportunity for employers and employees alike, offering savings on insurance premiums and out-of-pocket expenses. The plan operates on a plan-year basis established by the employer. Employees can set aside money from their paycheck for the reimbursement of qualified healthcare expenses.

FSA plans are governed by section 125 of the IRS tax code and Department of Treasury regulations. Within the framework of the regulations, employers have some flexibility in designing their plan so long as the terms of the plan are applied uniformly to the employees. Here are some of the various aspects of a plan’s design that are determined by the employer:

• The healthcare FSA limit
• The claims run‐out period
• Adding the 2½-month grace period
• Offering a debit card
• The FSA plan year
• Pre‐tax insurance premiums

About FSA regulations

FSA plans are regulated by the IRS and the Department of Treasury and are considered a group health plan. As such, they are subject to specific rules to ensure that the plan meets regulatory standards. There are three main areas of compliance for an FSA plan: the form 5500 filing, nondiscrimination testing, and the plan document and summary plan description (SPD) requirement. The Form 5500 filing is a requirement for plans with more than 100 HCFSA participants at the start of the plan year.

Nondiscrimination testing, or NDT, is a necessary step for all plans to ensure they treat all employees fairly, without favoring highly compensated or key employees. While the results aren’t submitted to any agency, it is the employer’s responsibility to ensure their plan meets these testing requirements.

A written plan document that governs the terms and conditions of the plan is required. This document should be updated or amended each year to account for changes in plan design. The SPD is a layman’s version of the plan document and is provided to the plan participants during the enrollment period.