Before the FSA spending deadline, how to tailor benefits messaging

In the midst of the holidays and other year-end activities, it’s easy to overlook important dates. However, one important date for HR leaders can’t be missed: The Dec. 31 flexible spending account (FSA) spending deadline impacts an estimated 70% of account holders. While the last thing any employee wants to do is leave money on the table at the end of their plan year, roughly half of FSA holders forfeited an average of $441 to their employers in 2022, according to a recent report.

While employees appreciate the tax advantages offered by FSAs, they may feel intimidated by the rules and regulations surrounding these accounts, and nearly a third of enrolled users say they find FSAs complicated.

HR teams can simplify tax-free spending accounts for employees and keep them engaged and enthusiastic with timely communication and helpful resources related to eligibility and deadlines. This can encourage employees to use (not lose) the valuable funds. Here are three steps HR teams should take to help employees become more savvy FSA users.

1. Create easy access to balance and eligibility information.

The first step to help employees effectively use funds before they expire is to make sure they’re aware of their FSA balance. HR pros can help by clearly communicating how to access balance information—whether that’s via an online benefits portal or by calling the FSA administrator at the number on the back of their debit card. HR can even post these reminders in an employee newsletter or in common areas in your building. For fully remote organizations, consider a deadline-spending email campaign to educate employees during the final weeks of the year. Be sure to include access to a searchable online eligibility list that allows employees to explore the broad selection of eligible products and services.

2. Communicate the FSA spending deadline and extensions early and often.

Dec. 31 has a way of sneaking up on us every year. That’s why it’s important to share the FSA spending deadline early and keep it visible throughout the year. Depending on how and where employees prefer to get information, use a combination of communication tools and channels, such as team meetings, intranet messages, emails, and posters or table tents. Remember to keep messages clear and easy to understand, making sure to highlight your organization’s specific deadlines (including rollovers and grace periods, if offered, and claims run-out) and how to check account balances. Design communications that cover:

• Partial rollover of unused FSA funds. If your organization offers a partial rollover of unused FSA funds, be sure to clearly communicate this to employees. The maximum allowed rollover of 2024 FSA funds to 2025 is $640. Note that those with an FSA rollover feature do not have a grace period, and vice versa, as only one of the two is allowed.
• Grace period. The FSA grace period is another optional deadline extension that employers can provide to give employees extra time to incur new expenses against the current year’s balance. The grace period is 2.5 months after the plan year deadline, which for most FSAs is Dec. 31. That means employees can incur expenses against 2024 funds until Mar. 15, 2025. If, for example, your plan year ends on Mar. 31, the grace period deadline will be Jun. 15. This extra time can make it easier to schedule appointments for FSA-eligible services. According to proprietary data from Health-E Commerce, 37% of people with a grace period deadline still forfeit funds because they aren’t aware of their deadline or they do not know how funds can be used.
• Claims run-out. An FSA run-out period gives employees up to 90 days following the last day of their plan year to submit receipts and claims for qualified expenses incurred during the FSA plan year. For FSA participants with a plan year that ends Dec. 31, the last day of their FSA run-out period would be Mar. 31 for expenses incurred by Dec. 31.

3. Demonstrate the connection between extensions and forfeitures.

While an FSA rollover or grace period gives employees extra time to use their tax-free funds, it’s still critical for employees to understand that an extension does not make them immune to forfeiting funds. For example, if employees elected the maximum FSA contribution in 2024 ($3,200) and their employer offers a partial rollover of $640, that employee must still spend $2,560 by the end of the year. Similarly, a grace period is simply a reprieve from the spending deadline, and Mar. 15 can sneak up just as quickly as Dec. 31.

The bottom line for HR teams is to never miss a chance to share deadline and eligibility information with employees. By doing so, you can help employees get more value and satisfaction from their accounts while enabling them to effectively and efficiently manage spending throughout the year.