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Letter to Katherine Archuleta, Director of the Office of Personnel Management - Allow Rollovers For Health FSA Accounts

U.S. Senator Ben Cardin (D-Md.) and his National Capital Region colleagues Senators Barbara A. Mikulski (D-Md.), Mark Warner and Tim Kaine (Both D-Va.), led a majority of the Senate this week, including all 53 Democrats and 2 Independents, in a letter to Office of Personnel Management (OPM) Director Kathleen Archuleta urging her to allow the federal workforce to take advantage of the new Treasury/IRS rule allowing a $500 rollover of unused health Flexible Savings Account (FSA) funds. OPM has still not made a determination after the recent rule change by the Department of Treasury that would give employers the ability to choose whether their employees could roll over up to $500 of their FSA fund to the following year, or provide a grace period to use available funds in the following year. This is a notable change that helps keep families and consumers in control of their health care decisions.

"It is unreasonable to expect health FSA participants to accurately forecast their out-of-pocket medical expenses a year in advance, and it is unfair to penalize them at the end of the plan year should their estimates prove to be inaccurate," the Senators wrote in their letter. According to OPM's own data, in 2012, 30,940 federal employees -- nearly 10 percent of participating employees -- forfeited an average of $392 each in contributions because of the "use-or-lose" rule.

The Senators noted that the U.S. Treasury and IRS have recognized the value of providing a rollover option for employees nationwide. "We urge you to provide this benefit to federal employees without delay," they added.

Director Katherine Archuleta
U.S. Office of Personnel Management
1900 E Street, N.W.
Washington, DC 20415

Dear Director Archuleta:

We write to urge you to modify the "use-or-lose" rule for Health Flexible Spending Arrangements available to federal employees through the FSAFEDS program to allow an annual rollover of up to $500 in unspent funds.

The health FSA is an important financial tool that permits workers to set aside up to $2,500 annually in tax-preferred accounts to pay for unreimbursed health expenses, such as copayments for doctor visits, prescription drugs, and medical supplies. Surveys of eligible participants indicate the primary reason for declining to enroll or for underfunding their accounts I concern about the "use-or-lose" rule, which requires participants to spend their entire contribution before the end of their plan year or forfeit the unused funds back to their employer.

According to OPM data, in 2012, approximately 322,700 federal workers held health FSAs, and the average election amount was $2,050. That year, 30,940 federal employees forfeited an average of $392 each in contributions because of the "use-or-lose" rule. It is unreasonable to expect health FSA participants to accurately forecast their out-of-pocket medical expenses a year in advance, and it is unfair to penalize them at the end of the plan year should their estimates prove to be inaccurate.

Fortunately, on October 31, the U.S. Department of the Treasury and the Internal Revenue Service issues a notice modifying the "use-or-lose" rule for health FSAs, permitting employers to allow participants to carry over up to $500 of their unused balances remaining at the end of a plan year. Some plan sponsors have chosen to adopt the carryover provisions for 2013, but federal employees may only benefit from the Treasury/IRS ruling if your agency takes action. We are told that, as of last week, OPM had not yet decided whether to extend the carryover option to the federal workforce.

We urge you to provide this benefit to federal employees without delay.


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