New FSA Notice Requirement for Employers with Participants in California
The California legislature adopted AB 1554, which requires employers to provide notice to flexible spending account (FSA) participants of any deadline to withdraw funds from their account before the end of the plan year. The new law is effective January 1, 2020 and applies to health FSAs, dependent care FSAs, and adoption assistance FSAs. Unfortunately, the law as written is very short, vague, and leaves some unanswered questions.
Our compliance team believes ERISA should preempt this new law with respect to health FSAs if the sponsoring employer is not a government entity or church. However, this argument hasn’t been pursued yet in the courts and many employers with California employees may decide to go ahead and comply.
What is Required?
The new law requires an employer to provide notice to FSA participants in California of any deadline to submit claims incurred during the plan year prior to the end of the plan year. Most FSA plans allow employees to submit claims incurred during the plan year during a runout period after the plan year ends (typically 90 or 60 days). Notice under the new law is not required in this situation. Rather, notice is required when claims must be submitted before the end of the plan year; in other words, when an employee terminates mid-plan year and must submit claims during the terminated employee runout period (typically 90 or 60 days from date of termination). The notice requirement is also triggered if an employer terminates its plan mid-plan year and requires employees to submit claims within 60 or 90 days of plan termination.
Employers must provide the required notice in two different forms (one of which may be electronic). The form of notice may include email, phone, text, mail, or in-person. Unfortunately, the law does not address when employers must provide this notice.
How ProBenefits is Assisting
ProBenefits will assist employers who must comply with this notice requirement through the Summary Plan Description (SPD) we prepare. ProBenefits provides all FSA clients with an SPD that contains, among other things, information on the deadline to submit claims prior to the end of the plan year when an employee terminates employment mid-plan year. The claim submission deadlines provision is located in the Plan Information Summary section of the SPD.
The SPD we provide can be used by employers to satisfy one form of the notice requirement since the SPD is already distributed to plan participants. To satisfy the required second form of notice, employers can include the claim submission deadline information outlined in the SPD in its termination/exit interview packet. The claims submission deadline information is also in the ProBenefits participant portal, but an employee who does not access the portal may not actually “receive” the notice.