Beginning in 2020, a new California law requires employers that sponsor flexible spending accounts (FSAs) to notify employees of any deadline to withdraw FSA funds before the end of the plan year.
This requirement applies to the following types of flexible spending accounts (FSAs), but is not limited to, dependent care flexible spending account, health flexible spending account, or adoption assistance flexible spending account.
This new law appears to apply to employees who terminate employment or lose FSA eligibility during the plan year.
Employers must provide this notice by two different forms, only one of which may be electronic. Permissible methods of communication may include, but are not limited to the following:
- Electronic mail communication.
- Telephone communication.
- Text message notification.
- Postal mail notification.
- In-person notification.
Although the law does not include a specific penalty for failing to provide the notice, it is possible that affected employees may pursue a refund of their unspent FSA funds.
Employees who do not withdraw FSA funds by the plan’s deadline forfeit any unused amounts.
ERISA may preempt this notice requirement for health care FSAs sponsored by ERISA-covered employers, but there has been no official guidance on this point that would currently permit an exemption.
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To clarify — if there aren’t any California employees participating in your employer sponsored FSA, no notice is required.
Questions? Contact Creative Benefits at 866-306-0200 or email us at solutions@creativebenefitsinc.com.