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  1. Helpful Hints for Lync Web App Users:If you are using Microsoft Lync on your computer, the presentation will automatically open in the best viewing format 1) Maximize viewing by using the toolbar at the bottom right of your screen. Change to Presentation view 2) To ask questions during the presentation, click on the messaging icon at the bottom left and type your question. Full Screen button (F11) Ask a question *For assistance, type your question or call (330) 436-3105

  2. 1-877-746-4263 • Access code: 0246416# Dial-In Numbers

  3. FSA Carryover Provision What employers Need to Know November 14, 2013

  4. “Trick or Treat” - (Notice 2013-71) On October 31, IRS modifiedthe “use or lose” rule that applies to health flexible spending arrangements (“FSAs”). Employers may now allow employees to carry over up to $500 of unused FSA balances to the next plan year. Carryover is optional, and may be adopted as early as the current 2013 plan year.

  5. History of Use-It-Or-Lose-It • Not in the original Code in 1978 –introduced in Proposed Regulations in 1984 • Modified with Extended Grace Period (EGP) in Notice 2005-41. • How ACA actually drove the modification: • $2500 limit on reduces deferral abuse • IRS solicited input in Notice 2012-40 • “overwhelming majority” favored carryover

  6. At Last…IRS Notice 2013-71 Employer is permitted (but notrequired) to allow up to $500 of unused health FSA funds to carry over to following plan years. Can be less than $500 (but we say go or don’t go) For general-purpose health FSAs as well as limited heath FSAs. Carryover is for qualified health expenses only – no cash-out! Carryover does not apply to Dependent Care FSAs

  7. Permitted Carryover Carryover is in addition to $2500 election limit (so participants could potentially have up to $3000 coverage in one year) Carryover amount is determined after the plan’s claim run-out period. Typically, this claim run out period is 90 days (March 31st for calendar year plans). Carryover available to anyone in plan on last day of Plan Year. (even if do not elect FSA for new year) Carryover is indefinite per example 4 of the guidance. As long as they are still an employee, they could carry over again (but not cumulative – no more than $500 from one year to another)

  8. The Details

  9. Plan Design Choices Carryover, or Extended Grace Period*, or Neither *EGP = Expenses incurred in the first 2 ½ months after the end of the Plan Year can be paid from funds remaining in the prior Plan Year. Optional.

  10. EGP vs. Carryover Advantage EGP Advantage Carryover • Employees can use their entire election during the Grace Period. (not just $500) • Carryover duration not limited – Carries over indefinitely until used. (as long as still an employee)

  11. Generally, an individual who is covered by a general purpose FSA may not make contributions to an HSA. • However, an individual may be covered by a limited purpose FSA that reimburses only dental, vision or “post-deductible” medical expenses incurred after the minimum annual deductible for the high deductible health plan is satisfied. Disadvantage of EGP & Carryover Extending coverage beyond the current Plan Year mightmess with HSA eligibility.

  12. EGP: Unless your balance in the FSA is zero on last day of P.Y. you are considered to have coverage in the next year’s FSA plan during full 3 months of new P.Y. - even if you do not enroll in new year and even after funds exhausted. • Carryover: How long will your eligibility be “tainted” if you have FSA carryover? The guidance did not address how carryover would impact HSA eligibility. Disadvantage of EGP & Carryover Extending coverage beyond the current Plan Year mightmess with HSA eligibility.

  13. Making Carryover Work with HSAs But it WILL be addressed with official guidance – when? Possible work-arounds (subject to agency guidance): • Allow waiver of carryover or preclude carryover for those who enroll in HSA • Convert carryover to limited purpose FSA – on an individual basis? • Allow carryover, but provide for limited duration (e.g. November 30?)

  14. ACTION ITEMS • Decide if will adopt Carryover for 2014 & notify your TPA • If you offer HDHP with HSAs, consider adding Limited Health FSA so it is available for rollover (if that is even allowed eventually) • Communicate it for 2014 open enrollment now. NEO is providing: • updated enrollment forms, • new language for online enrollment sites, • a one-page fact sheet for employees (posted on Oswald landing page on FlexNEO.com) • Plan amendment can come later

  15. Amendments – when and how By 12/31/13 Only if you want to adopt carryover for 2013 and need to eliminate EGP for 2013. Eliminating EGP this late in the year could have negative impact on participants who plan to use more than $500 of 2013 funds for expenses incurred in early 2014. By 12/31/14 To adopt carryover for 2013 (as long as do not currently have EGP) or for 2014. NEO will be issuing amendments in first quarter of 2014. Caution!

  16. Impact (Survey & TPAs opinions) Fewer than 20% enroll in FSA (less for larger employers). Fear of use-or-lose. Average forfeiture is less than $100. Because of conservative estimates? Carryover is expected to drive enrollment by 20-40% A win for employers too, as increases payroll tax savings

  17. In the Weeds COBRA: Do they have to “elect” to keep their rollover? What is the premium? Will this extend coverage period of FSA COBRA beyond current plan year? Buried in the Notice: Clarification of transition relief provided in earlier proposed regulations so that employers of all sizes can permit certain changes in salary reduction elections for their non-calendar year cafeteria plan. OK….What does that mean??

  18. What if EE Wants to Drop Coverage for Marketplace? Under Section 125 rules, obtaining health coverage through the Marketplace would not constitute a “change in status”, and therefore employees would not be able to drop coverage under the employer’s plan outside open enrollment. The IRS addressed this in Proposed regs earlier this year, and said a fiscal-year plan could allow someone to add or drop coverage on 1/1/14 if they enroll in coverage through the Marketplace. But the previous guidance said it was only for “applicable large employers”. The October Notice clarifies it is available to any size employer • It appears that it is for this January 1 period only, as that is when the Marketplace first becomes available. After this January 1, the Marketplace is open and these EEs already have the info they need to choose Marketplace or ER plan? • If the ER wants to allow it, then they must amend plan by December 31, 2014, retroactive to the date of the first day of the 2013 fiscal plan year of the cafeteria plan.

  19. Thank You! We hope you found this helpful To submit a question now, click on the messaging icon at the bottom left and type your question. • You may also submit inquiries to: • JanetP@FlexNEO.com • DanC@FlexNEO.com

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