|55 ELM STREET
Telephone: (860) 702-3480
|HEALTH CARE COST
|STATE OF CONNECTICUT
OFFICE OF THE STATE COMPTROLLER
HEALTHCARE POLICY & BENEFIT SERVICES DIVISION
November 7, 2013
|ATTENTION:||Personnel and Payroll Officers, Chief Administrative and Fiscal Officers, and Business Managers|
|SUBJECT:||Open Enrollment for Medical Flexible Spending Account Program Modification of "Use it or Lose It" Rule|
As announced in Memorandum 2013-05, open enrollment for the Medical Flexible Spending Plan (MEDFLEX) and the Dependent Care Assistance Program (DCAP) for the 2014 Plan Year began on November 1, 2013 and will end on November 30, 2013. The purpose of this memorandum is to inform you of an important development that may affect employee contributions to the MEDFLEX for 2014. (This change does not affect the DCAP.) Please post the attached, updated flyer in a prominent place in your agency immediately and remove the earlier version.
II. IRS CHANGE TO USE IT OR LOSE IT RULE
Just as we started our MEDFLEX open enrollment on November 1, 2013, the Internal Revenue Service issued Notice 2013-71, which made an important change in the "use it or lose it" rule. Under the existing "use it or lose it" rule all unclaimed funds in a member’s MEDFLEX account at the end of the plan year are forfeited. Our plan has a "run-out" period that gives members until March 31st of the next year to seek reimbursement for eligible claims incurred in the prior calendar year. After that all unused funds are forfeited.
The recent IRS announcement permits a plan sponsor to amend its medical flexible spending plan to allow each member to carry over a maximum of $500 in unspent funds from the preceding plan year to the next. The Comptroller has decided to amend the plan document in 2013 to allow members who participated in MEDFLEX during 2013 to carry over up to $500 in unused funds into Plan Year 2014. The change will give employees more flexibility and reduce the pressure to incur claims or load up on eligible items before the end of the year just to avoid the risk of forfeiture. Members with MEDFLEX balances of $500 or less as of March 31st will have those funds available for eligible expenses during Plan Year 2014. Unused 2013 Plan Year funds over $500 will be forfeited after the March 31, 2014 deadline due to operation of the IRS "use it or lose it" rule.
III. NO CHANGE IN MAXIMUM CONTRIBUTION AMOUNT
The IRS notice and the 2013 plan amendment will not affect the maximum amount ($2500) a member can defer to the MEDFLEX for plan year 2014. However, because the amendment will permit up to $500 in unused 2013 Plan Year funds to be carried over, it is possible for a member’s MEDFLEX balance to exceed $2500 during Plan Year 2014. For example if someone elects to defer $2500 for 2014 and has $400 in unspent funds from Plan Year 2013 as of March 31st, the MEDFLEX available balance would be $2900 for Plan Year 2014. In any given year, the maximum amount that can be carried over to the next is $500.
If an employee participated in the MEDFLEX during Plan Year 2013 but does not enroll for Plan Year 2014, that member (if still employed) will be able to use up to $500 in his or her account for eligible expenses incurred during Plan Year 2014. Any amount remaining as of March 31, 2015 would be forfeited.
IV. PROCEDURES FOR THOSE WHO HAVE ALREADY SENT IN ENROLLMENT FORMS TO PBS FOR PLAN YEAR 2014
A number of employees have already sent MEDFLEX open enrollment forms to the plan’s administrator, Progressive Benefit Solutions, Inc. (PBS). PBS will notify those employees of the plan amendment and change in the “use it or lose it” rule as it may affect the amount they want to defer for Plan Year 2014.
Employees, who wish to change a previously submitted MEDFLEX deferral election for Plan Year 2014, must send a revised enrollment form to PBS no later than November 30, 2013. Enrollment/change forms can be obtained at http://www.osc.ct.gov/empret/indxhlth.htm, or on the PBS web site, www.ctpbs.com or by contacting PBS toll free at 1-866-906-8023.
PBS will perform payroll processing for those who enroll in MEDFLEX and will contact employees who submit revised election forms if it is unclear which deferral amount is intended. There will be no extension of the November 30, 2013 end date for open enrollment.
Your anticipated assistance in communicating this update to your agency’s employees is essential. Questions concerning open enrollment for the MEDFLEX or the other flexible spending account plans may be directed to PBS at the 1-866-906-8023.
Questions pertaining to this memorandum may be directed to the Healthcare Policy & Benefit Services Division, Employee Benefits Unit at (860) 702-3570.
Very truly yours,
Thomas C. Woodruff, Ph.D., Director
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