IRS recognizes new "Grace Period" for FSAs...
Recently, the U.S. Treasury Department released Notice 2005-32 that could permit employees participating in Flexible Spending Plans a grace period of up to 2 1/2 months beyond the end of the plan year to receive services.
For example, participants of a Flex Plan with a January to December plan year will have until March 15 of the next year to incur services for reimbursement. After that, unused amounts are subject to the “use it or lose it” rule and must be forfeited.
We've received a few calls asking about the possibility of Benefit Services of Hawaii, Inc. being able to accommodate this new ruling.
We ask for your patience as we take the time to explore how this will impact the administration of your Flex Plan. Logically speaking, the rule is easy to follow, but there are many areas to consider.
At a minimum, our administrative system must be revised to properly track account balances from the prior plan year, then segregate and process accordingly. We are also investigating other necessary system modifications, administrative details and educational methods that will be necessary to allow us to offer this grace period.
