Under the Affordable Care Act there will be a new limit on the amount of money that an employee can contribute to a health flexible spending account which will become effective for plan years beginning after December 31, 2012. Calendar-year plans will be subject to the new limit as of January 1, 2013, and non-calendar year plans will become subject to the limit on the first day of the plan year that begins in 2013.
The new employee deferral limit will be $2,500 per plan year, indexed for inflation for the years after 2013.
All health flexible spending accounts offered through Section 125 “cafeteria” or “flexible benefits” plans must comply. Plans that already imposed limits of $2,500 or less may not need to make changes, but any plan that currently permits employees to contribute more than $2,500 to health flexible spending accounts must make changes—whether or not any employees actually contribute that much.
With these changes, there are two important things to note. First, “grandfathered plans” under the Affordable Care Act will not be exempt from this requirement. Second, employer contributions through flex credits or direct contributions to health flexible spending accounts will not count toward the $2,500 limit.
Employers that sponsor Section 125 “cafeteria” or “flexible benefits” plans with a health flexible benefit account need to be sure their plans impose this new limit for the 2013 plan year. Employers should also know that IRS guidance allows for the plan document to be amended retroactively, so long as the plan operates in accordance with the law, and the amendment is adopted no later than December 31, 2014.
Since we are already approaching fall and the open enrollment season, now is the time to begin making changes. Employees will need information in time to make open enrollment choices.