Last year's change to the longstanding use-it-or-lose-it rule for flexible spending accounts is driving double-digit enrollment growth.
Benefit and payment firm Alegeus Technologies said that clients who have actively promoted the FSA rollover allowance to their employer groups and eligible employees are seeing 11 percent incremental growth in FSA enrollment and 9 percent growth in FSA elections—compared to a flat overall FSA market growth.
Last fall the U.S. Treasury Department issued new rules that let employers offer employees the $500 carryover. Previously, unused employee FSA contributions were forfeited to the employer at the end of the plan year or grace period, which industry insiders say were a barrier to adoption.
According to enrollment data from Alegeus, just 8 percent of employer groups adopted rollover for their 2014 FSA plans—due in large part to the late timing of the rule change. But clients that have fully embraced the policy change are already seeing 30 percent or higher adoption through mid-year enrollment, the firm said.
Executives said they expect adoption rates to go much higher.
“The timing of the policy change last year, at the end of the open enrollment cycle, prohibited many administrators and employers from adopting FSA rollover for their 2014 plans,” said Bob Natt, Alegeus executive chairman. “However, with ten months behind us to assess and prepare, now is the ideal time for employers to embrace rollover and update FSA plan designs leading into the 2015 open enrollment cycle.”
“It's still premature to know the full impact of the FSA rollover policy change for the 2015 open enrollment cycle,” Natt said. “However, early indicators are showing that rollover can have a significant impact for those employers that adopt, driving double-digit incremental growth in both FSA enrollment and contributions.”
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