Flex Spending Accounts: Use It or Lose It Season

Your employee's $500 in unused FSA money just disappeared. That's $500 in tax-free compensation they earned but never used – and it reflects poorly on your benefits package. For Long Island employers offering flexible spending accounts, the first quarter marks "use it or lose it" season, when unused funds typically expire.

The financial impact goes beyond individual employees. When your workforce consistently forfeits FSA dollars, it signals a disconnect between the benefits you're paying for and the value employees receive. You're essentially subsidizing a benefit that generates zero employee satisfaction or loyalty.

The Real Cost of FSA Confusion

Most employees contribute to FSAs during open enrollment but struggle to maximize their accounts throughout the year. They don't understand what qualifies for reimbursement, how to submit claims, or that they need to spend down balances by specific deadlines. The result? Your investment in comprehensive benefits packages delivers diminished returns.

For a 25-employee company where half participate in FSA with $1,000 annual elections, even a 20% forfeiture rate means $2,500 in unused employee compensation annually. That's money your employees earned through payroll deductions but never received back – creating frustration that undermines your entire benefits strategy.

January FSA Strategies That Work

Smart employers use the post-enrollment period to maximize FSA utilization. This means proactive employee education about eligible expenses, claim submission processes, and upcoming deadlines. Many employees don't realize FSAs cover over-the-counter medications, menstrual products, sunscreen, and even some home medical equipment.

The key is treating FSA education like any other business investment. Schedule brief team meetings to review eligible expenses, demonstrate your FSA portal, and remind employees about upcoming deadlines. Some employers send monthly FSA balance reminders or share lists of commonly overlooked eligible expenses.

Compliance Considerations for FSA Administration

FSA plans must comply with federal regulations around plan years, grace periods, and carryover amounts. According to recent guidance affecting Long Island businesses, employers need to ensure their FSA administration aligns with current IRS requirements while maximizing employee utilization.

Plans can offer either a grace period (typically 2.5 months after plan year end) or allow participants to carry over up to $640 of unused funds to the following year – but not both. Most Long Island employers benefit from the carryover option, which reduces employee anxiety about losing money while maintaining the tax advantages.

Making Your FSA Investment Count

The post-enrollment period is prime time for FSA education because employees are motivated to understand benefits they just elected. Consider these proven strategies:

• Email quarterly FSA balance statements with spending suggestions
• Share lists of eligible expenses many employees overlook
• Provide clear instructions for mobile claim submission
• Send deadline reminders well before plan year end
• Offer brief "FSA office hours" where employees can ask questions

Remember, every dollar your employees forfeit represents compensation they earned but couldn't access due to confusion or lack of information. Professional benefits enrollment and education ensures your workforce actually uses the valuable benefits you provide.

Long Island Employer Takeaways

FSA benefits only deliver value when employees understand and use them. The first quarter offers the perfect opportunity to transform confused participants into confident users who appreciate the tax savings you've made possible. This isn't just about compliance – it's about maximizing the return on your benefits investment.

Benton Oakfield's ongoing employee education ensures your FSA participants understand their benefits year-round, not just during enrollment. We provide the tools and support that turn unused FSA balances into employee appreciation and loyalty – delivering real ROI from your benefits dollars.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This summary is for informational purposes only. Please contact your Benton Oakfield representative to review how these changes impact your specific plan documents.

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