Question: Does California require employers to provide notices about flexible spending accounts (FSAs)? What is required? If the third-party administrator provides the notice, does the employer also have to do it?
Answer: The state of California recently enacted Assembly Bill 1554 with a new notice requirement taking effect January 1, 2020. Employers will be required to notify employees participating in a flexible spending account (FSA), including health, dependent care, and adoption assistance FSAs, if the plan imposes any deadlines on claiming benefits before the end of a plan year. That may sound strange since very few FSAs impose claim deadlines before the end of the plan year. The law’s intent, however, is to protect FSA participants who terminate mid-year if their plan imposes a shorter claims filing deadline.
The typical FSA plan provides that claims for expenses incurred while the employee was a participant may be filed as late as two or three months after the plan year ends, even if the employee left before the year ended. For instance, most plans are calendar-year plans and allow eligible claims to be filed through March 31 of the following year. (Eligible claims are claims for covered expenses incurred while the employee was an active participant.) Based on the text of the law, employers that offer FSAs with that type of claim filing provision should not be affected by the new California notice requirement. It is possible, however, that the state may consider expanding the notice requirement to include such plans.
The law’s primary focus is on FSA plans that start counting the plan’s claim filing period from the end of the plan year, or from the employee’s termination date, whichever is earlier.
For instance, if the plan imposes a three-month limit counting from the employee’s termination, an employee who terminates May 15 would need to file his claims by August 15, which is well before the end of the standard filing period for other employees. This is the “problem” that the California law is intended to correct.
Either the employer or a third-party administrator may satisfy the notice requirement, although it is the employer’s responsibility to ensure it is done. The notice must explain any FSA plan deadlines for using the benefits and filing claims, but does not need to include individualized statements or account balances. Notices must be provided using at least two different delivery methods, one of which must be non-electronic. The two-method rule is intended to guarantee that the employee will receive the notice even if one delivery method fails. Examples of permitted delivery methods include:
Many questions remain about the employer’s duties, if any, under AB 1554. Although the state’s Division of Labor Standards Enforcement has jurisdiction, it has not yet released any guidance. ThinkHR is continuing to monitor this issue and will post any updates on our blog.