125 Plans Can Be Amended to Allow a $500 Health FSA Carryover
The carryover feature can be adopted for the 2014 plan year by co-ops without a grace period.
As we announced late last year, following a change in IRS rules, 125 Plans can be modified so that participants with a health flexible spending account (Health FSA) can carry over up to $500 in unused account balances from one plan year to the next. An “unused account balance” means any amount that is remaining at the end of the claims run-out period for the previous year.
The carryover feature can be applied to Health FSAs as well as Limited-Use Health FSAs (LU-Health FSAs), which can be used for dental or vision expenses. The annual Health FSA participant contribution limit of $2,500 is not affected by the carryover feature.
Grace period or carry over, not both
Co-ops with 125 Plans that provide for a grace period for their Health FSAs cannot simultaneously provide the $500 carryover feature.
- If your co-op’s 125 Plan currently has the 2½-month grace period for its Health FSAs, but decides to provide for the carryover feature instead: Your 125 Plan will need to be amended to rescind the Health FSA grace period and adopt the carryover feature. These changes can be made effective for the 2015 plan year. Because NRECA’s 125 Plan will be restated this year (see below), these changes can be made together as part of the restatement process.
- If your co-op’s 125 Plan does not currently provide for a Health FSA grace period, however, you may choose to add the carryover feature for the 2014 plan year. An adoption agreement would need to be received by NRECA no later than October 15, 2014. If your co-op decides to make this change, it should inform employees as soon as possible.
Sample adoption agreements and other documents you will need will be made available on Cooperative.com and via I&FS Weekly in the coming weeks. More information on the carryover option can be found in the IRS Notice.
HSA compatibility
Note that participants enrolled in a general purpose health FSA are not eligible to contribute to a Health Savings Account (HSA) in a given plan year—however, those enrolled in a LU-Health FSA may contribute to an HSA.
Plan restatements coincide
The CBA-administered sample 125 and HRA plan documents are being amended and restated this year to conform to regulatory, design and operational changes since the last restatement. Co-ops offering these plans must adopt the restated plans by executing an updated adoption agreement and the restated plan document after reviewing it with legal counsel.
Look for more information on this and other new features regarding the CBA-administered Health FSA and HRA plans in the coming weeks. If you have questions in the meantime, contact the Member Contact Center at 1.866.673.2299 or contactcenter@nreca.coop.