Flexible Spending Account Program Improved For Federal Workers

By on June 23, 2005 in Current Events with 0 Comments

It’s been a good week for federal employees. First, the House Appropriations Committee approved a pay-parity measure that would ensure that federal civilian workers are given the same proposed 3.1 percent pay increase in 2006 as members of the military. While there are still several battles that have to be fought along this front before the pay parity measure is realized, history indicates that federal civilian workers should feel comfortable that they will receive the same pay increase as their military counterparts.

And more good news arrived Wednesday when the Office of Personnel Management announced that the flexible spending account program for federal workers has been improved. OPM said it will give federal workers enrolled in the Federal Flexible Spending Account Program (FSAFEDS) an additional two-and-a-half months to incur claims for the 2005 plan year and use their 2005 account balances – in effect extending the "use-it or lose it" rule by two-and-a-half months. As a result, the announcement should reduce the amount of funds employees forfeit because of the use-it or lose-it rule.

OPM Acting Director Dan G. Blair recently issued a memo to the Chief Human Capital Officers announcing the enhancements to FSAFEDS.

According to Blair, OPM is also increasing the annual health care FSA contribution limit from $4,000 to $5,000 beginning in plan year 2006. Employees will also be given an extra month, until May 31, 2006 to file claims for reimbursement.

"These enhancements provide participants an extra month to file their claims plus an additional 2 ½ months to incur eligible medical expenses, therefore employees may take the opportunity to increase the funds in their FSA plans in 2006." Blair said. "Health care costs continue to top the list of increasing concerns to all Americans and federal employees. These enhancements encourage all employees to take full advantage of options available in the FSAFEDS program."

On May 18, 2005, the Department of the Treasury and the Internal Revenue Service issued a notice giving employers the flexibility to amend their plan documents to allow enrollees in their flexible spending account programs up to 14 ½ months to incur eligible expenses using their annual plan year election. Although the notice allows up to a 2 ½ month grace period, it is not an entitlement. Each employer offering an FSA program must make its own independent decision whether to take advantage of this flexibility.

The Treasury Department developed the new rule to give employees participating in FSA programs more time to incur and claim reimbursable medical and dependent care expenses and ease the year-end spending rush prompted by the prior rule. To incorporate this new grace period for the 2005 plan year in the FSAFEDS Program, OPM will modify the plan document for its cafeteria plan by Dec. 31, 2005.

Currently, the FSAFEDS Program lets employees contribute pre-tax income up to $4,000 each year to a health care FSA to pay for qualified medical expenses not covered by the Federal Employees Health Benefits Program, or any other insurance program, including dental care, eye-ware, prescription drugs, co-payments, and over-the-counter medicines. Employees also may fund a separate FSA account up to $5,000 annually to cover the cost of child care or to pay for the care of qualifying parents or other eligible dependents.

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