California Passes Law Affecting Notices to FSA Participants

California Passes Law Affecting Notices to FSA Participants

A new California law may impact the notices that California employers need to provide to their FSA participants. Specifically, as of January 1, 2020, a California employer who offers a flexible spending account (“FSA”) must notify participating employees of any deadline to withdraw funds from the FSA that is prior to the end of the plan year.

If FSA coverage terminates mid-year because, for example, an employee was terminated or changed his or her employment status, the FSA either will impose a shortened time period for submitting run-out claims or the regular calendar-year run-out period will apply. A run-out period is a time in the new plan year during which the plan participant can file claims for expenses incurred in the previous plan year. The new law affecting notices to FSA participants only applies when a shortened time period for submitting run-out claims applies. So, if an employee’s employment status changes on February 1, for example, some FSAs may require that claims incurred on or before February 1 must be filed within 60 to 90 days from that date. In this scenario, the new notice requirement will apply.

Other FSAs, however, do not require claims to be filed within a certain period after a mid-year employment status change. For these plans, the FSA requires eligible claims to be filed within a certain period after the end of the plan year. For example, if an employee’s employment status changes on February 1, the FSA plan participant would have 60 to 90 days after the upcoming December 31 to file for reimbursement of claims incurred on or before February 1. Because funds are not required to be withdrawn before the end of the plan year, the new law would not apply in this scenario.

If the new law applies, notice must be provided in two forms, only one of which may be via e-mail. Other permissible notice methods include print, in-person, phone, postal mail, or text message.