Category: FSA

Open Enrollment Compliance Reminders & Considerations

On By Michelle Turner, MBA, CEBSIn ACA, Cafeteria plans, COBRA, FSA, HIPAALeave a comment

Open enrollment can be a stressful time for employers. Planning well in advance and ensuring there is time to strategize and set new goals can help alleviate the missteps.

Open enrollment is also a perfect time to address compliance, especially this year with the relaxed regulations that many employers adapted based on their workforce needs.

Prior to open enrollment employers may also need to determine if changes made for the 2021 plan can or will continue in 2022.

Here is a list of open enrollment compliance reminders & considerations:

(Download checklist)

COBRA Beneficiaries

  • Are you notifying COBRA beneficiaries of election opportunities? The “Outbreak Period” has relaxed the timing for elections. Therefore, anyone who is still eligible to elect COBRA will need to receive the open enrollment materials.
  • COBRA beneficiaries have the same rights as similarly situated active employees.

Evergreen/Default Elections

  • How is your election process communicated?
  • Do your plan documents allow for evergreen elections?
  • If you offer an FSA, are you requiring an annual election?

ACA – Offers of Coverage

  • How are offers of coverage being documented?
  • Are you able to provide proof of employees who waive benefits?
  • If you are an ALE, can you confirm that at least one of the health plans offered satisfies the ACA’s affordability standard? (9.83% for 2021 plan years)

Are you providing the mandatory notices?

-CHIPRA                                          
-Medicare Part D
-Wellness Notices		-Summary of Benefits & Coverage (SBC)
-HIPAA Special Enrollment Rights
-HIPAA Privacy Notice		-WCHRA
-Initial COBRA Notice
-Notice of Patient Protections

Open Enrollment Guide

  • Is there a disclaimer indicating that if there are discrepancies between the open enrollment guide, summary plan description & plan document that the plan document will control?

⭐ TIP: Include language in the guide about it also being the Summary of Material Modification (SMM). This prevents the need to create a separate SMM. ⭐

Electronic Disclosure

  • If you are providing your documents electronically, do all employees use a computer as an integral part of their duties? If not, have you received affirmative consent to provide them electronically?

HIPAA Privacy

  • Enrollment data may be considered “PHI” under HIPAA.
  • Do you have a HIPAA Policy & Procedure manual?
  • Are business associate agreements in place?

Correcting/Changing Participant Elections

  • Pre-tax elections are irrevocable after the plan year has started unless the participant. experiences another permissible midyear change in status event (e.g., marriage).
  • Pre-tax elections are required by the IRS to be prospective in most situations.
  • Retroactive election changes are rarely permitted under the tax code.

If you have questions about the above or need help with an employee benefits administration question, please contact us. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Compliance Trap: HSA & FSA – When There Is a Grace Period Or Carryover

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, FSA, HSALeave a comment
Despite an employer’s best intentions, many entities do not have processes in place to ensure that they are compliant with the IRS’s health savings account (HSA) rules. Others are not even aware of the compliance risks and find themselves in violation, which creates risks for both the company and their employees.

There are four main HSA compliance “traps” that fall into 4 main categories:

  • Disqualifying Coverage – eligibility violations
  • Contribution issues – excess or ineligible contributions, failure to open an account
  • Cafeteria Plan Issues
  • Mistaken Contributions

This is the second blog post on disqualifying coverage. As mentioned previously, a health flexible spending arrangement (FSA) or a spouse’s FSA (unless it is limited purpose or post-deductible) is problematic.

However, employers who offer a health FSA also need to understand the complications if they also offer an HSA. Especially employers who have a calendar year FSA and their medical plan renews off calendar year. Or employers who add an HDHP when they already have a health FSA established. Their health FSA plan design may impact HSA eligibility, preventing employees from being eligible to participate in an HSA when they first enroll in a HSA compatible high deductible health plan (HDHP).

Grace Period

For instance, a grace period is an optional plan design feature that permits participants with unused amounts at the end of the plan year to continue incurring reimbursable claims from that unused balance for up to 2 ½* months following the end of the plan year. This plan design disqualifies an individual from HSA eligibility unless they have a zero balance on the last day of plan year.

A zero balance means the claims have been processed and the account balance shows $0.00. If they have any amount in their FSA as of the last date of the plan year, they are not eligible to contribute (or receive contributions) to an HSA until first of the month following the end of the grace period. Even if they spend the remaining money during the grace period.

EXAMPLE:

  • Kelsey is a full-time employee at Jam Studios. For 2020, Kelsey is enrolled in a PPO plan and contributes $2,750 to the calendar year health FSA with a 2 ½ month grace period.
  • Jam Studios for 2021 open enrollment adds an HDHP plan with a $100/month employer HSA contribution.
  • Kelsey decides the HDHP is a better option for her and elects this new plan option in November at open enrollment effective for the 1/1/2021 plan year.
  • On December 31, 2020, Kelsey’s health FSA account had a $300 balance remaining. Kelsey is not eligible to open an HSA, make or receive any HSA contributions until the first of the month after the 2 ½ month grace period, or 4/1/2021. Even if Kelsey submits a claim for reimbursement during the grace period.

Carryover

Likewise, a carryover is an optional plan feature that permits health FSA participants to carryover up to $550 (2020 maximum*) of unused amounts the subsequent plan year. This may also create a problem.

Solutions

There are ways for the health FSA plan to be designed to avoid these hiccups. For instance, a plan with a:

  • Grace Period or Carryover: Plans could be designed to permit participants to opt out or waive the grace period or carryover prior to the beginning of the following year.
  • Carryover: Plans with a carryover could be designed so a minimum threshold amount is required to create a new annual election and if the employee’s balance is less than the minimum their health FSA participation does not automatically continue.
  • Carryover: The employer with a carryover could offer a limited purpose FSA and design their plan so remaining funds automatically carry over to the limited purpose FSA for employees who elect an HDHP.

But these plan design options need to be made prior to the start of the plan year.** Therefore, employers need to be aware of these traps in order to educate their employees prior to being permitted to enroll in an employer’s HSA.

*The grace period timeframe and carryover limits mentioned are under generally applicable FSA rules. Because of the COVID-19 pandemic and unanticipated changes in the availability of certain medical care, the IRS recognized employees may be more likely to have unused health FSA amounts at the end of plan years, or grace periods, ending in 2020. Notice 2020-29 provides temporary special rules that allowed employers to amend their cafeteria plans to extend the period employees could be permitted to use health FSA amounts remaining in their accounts as of the end of the grace period or plan year. However, an individual is not eligible to make contributions to an HSA during a month in which the individual participates in a general purpose health FSA to which unused amounts are carried over or the grace period is extended.

**The IRS made exceptions for plan amendment rules due to the pandemic. Employers may amend their plans to allow employees, on an employee-by-employee basis, to opt out of the carryover or to opt out of any extended period for incurring claims in plan years ending in 2021 and 2022, to preserve their HSA eligibility.

This is Part 2 of HSA Compliance Traps. Be sure to follow our blog to learn about the additional HSA Compliance Traps published later this year.

If you have a question, we are here to help! Let us end your employee benefits compliance confusion. Send us an email today!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on our website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Compliance Trap: HSA & Spouse’s FSA

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, eligibility, FSA, HSA7 Comments

Despite an employer’s best intentions, many entities don’t have processes in place to ensure that they are compliant with the IRS’s HSA rules. Others are not even aware of the compliance risks and find themselves in violation, which creates risks for both the company and their employees.

There are four main health savings account (HSA) compliance “traps” that I regularly find myself providing guidance on regarding HSAs, which fall into 4 main categories:

  • Disqualifying coverage – eligibility violations
  • Contribution issues – excess or ineligible contributions, failure to open an account
  • Cafeteria Plan Issues
  • Mistaken Contributions

All are equally problematic, however, for many employers open enrollment season is upon them and the one top of mind is disqualifying coverage, or what makes one ineligible for an HSA account.

According to the IRS, to be an eligible individual and qualify for an HSA, an individual must meet the following requirements:

  • Must be covered under an HDHP on the first day of the month
  • Cannot have disqualifying health coverage
  • Cannot be enrolled in Medicare
  • Cannot be claimed as a dependent on someone else’s tax return for the year

One of the most overlooked disqualifying coverages is a health flexible spending account (FSA) or a spouse’s health FSA (unless it is limited purpose or post-deductible).

The most common mistake I come across is when both spouses enroll in their own employer’s sponsored health coverage and one spouse elects a non-high deductible health plan (HDHP) plan with a general purpose health FSA and the other elects an HDHP plan and makes HSA contributions. Under the IRS tax rules, the health FSA could be used to reimburse qualified medical expenses on the employee, spouse or all dependents claimed on the employee’s tax return, therefore it is considered “disqualifying health coverage’ and it disrupts HSA eligibility. I often here, “but my spouse doesn’t spend their FSA $ on me”….that doesn’t matter. The FSA could be spent on the spouse, therefore, it disrupts HSA eligibility

For example:

  • Marcy and Charlie are married, Marcy is a full-time employee at Peanut’s Place and Scott is a full-time employee at Snoopy Hotel.
  • Marcy enrolls in single coverage PPO (e.g. non-HDHP) with Peanut’s Place and elects the health FSA.
  • Charlie enrolls in single coverage HDHP with Snoopy Hotel and wishes to enroll in the accompanying HSA but is ineligible. This is because Marcy has a health FSA (which is disqualifying coverage) and she is permitted to spend her health FSA dollars on her qualifying medical expenses, and those of her spouse and dependents.
  • Even if Marcy does not spend her health FSA dollars on Charlie, Charlie is still ineligible for Snoopy Hotel’s HSA.

It is important during open enrollment meetings that employers are providing education to employees and helping them be aware of this ‘trap’ so employees are enrolling in the health plan that works best for their situation and/or family.

This is Part 1 of HSA Compliance Traps. Be sure to follow my blog to learn about additional HSA Compliance Traps published later this year.




Health FSA & HSA in the same year?

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, COBRA, FSA, HSA1 Comment

puzzle

Q: We just hired a new employee on 7/1 who told us he elected the maximum amount under his previous employer’s health FSA that started in January. We offer a HDHP with an HSA. Is he eligible to participate in an HSA? Or does he need to wait until next year? 

A:  If his health FSA terminated (i.e. he did not elect COBRA), he is eligible to participate in an HSA as of the first of the month after his FSA termination, assuming he’s otherwise eligible for the HSA.

There are 4 basic rules to Qualify for an HSA:

  • Covered under a high deductible health plan (HDHP), on the first day of the month.
  • Have no other health coverage except what is permitted under the regulations
  • Not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

So if he meets these 4 requirements, he is eligible to open an HSA on the first of the month following the health FSA termination.

When an employee leaves a job during the course of the year, they are still entitled to the earmarked FSA amount for that year (assuming the eligible expenses incurred prior to termination and claims submitted timely), even if they spend more than has been taken out of their paycheck so far. Furthermore, they could contribute to a new employer’s FSA (or HSA) and have additional pre-tax dollars to spend. (The “FSA loophole” doesn’t work for HSAs because the HSAs are portable and the employee’s account even if they leave.) Likewise, an employee may work for two or more entirely different (i.e. unrelated) entities and contribute the maximum amount to both employer’s FSAs at the same time. The health FSA limit is per employee per employer’s health FSA plan.

So if the health FSA and the HSA don’t overlap, (i.e. the health FSA terminated when the employee left the previous employer) he can contribute to an HSA for the remaining months assuming he’s otherwise eligible (mentioned above). The amount he is eligible to contribute, is calculated in two ways (see Limit On Contributions):

  1. “general monthly contribution rule” – which is one-twelfth of the applicable maximum contribution limit for the year for each month of they year they are HSA eligible. (There are tax implications for “over contributing” when not eligible.)
  2. “last month rule” – which basically states an individual is treated as HSA-eligible for the entire calendar year for purposes of HSA contributions, if they are eligible on the first day of the last month of their tax year (which is Dec. 1 for most). However, to rely on this special rule, the individual must then remain eligible for the HSA through the next 12 months after the last month of their tax year. (i.e. 13 months total).

If he did elect COBRA, assuming no carry-over provision (not common for COBRA participants to be eligible for) or grace period (this is something many COBRA participants are eligible for), or if there is a grace period (or carryover) & he has a zero balance on the last day of the FSA plan year, then he would be eligible for an HSA as of the first day of the month after the health FSA plan year ends (assuming he’s otherwise eligible for the HSA).

Dependent Care FSA & Leave of Absence

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, DCAP, FSALeave a comment

daycare

When an employee takes a leave of absence (LOA), protected (e.g. FMLA) or unprotected, they may no longer be eligible for reimbursements from their dependent care FSA (which IRS regulations call a “DCAP” = dependent care assistance program) during their leave. However, they may still be able to participate in the DCAP depending on their employer’s LOA policy. 

REIMBURSEMENT

There are 2 conditions required for dependent care expenses to be eligible for reimbursement:

  1. employee must incur the expense to enable the employee and the employee’s spouse to be “gainfully employed” – a facts and circumstances test
  2. the expense must be for the “care” of one or more “qualifying individuals”

In general, condition #1 is determined on a daily basis, however there are exceptions to the “daily basis” rule for certain, short, temporary absences (e.g. vacation, minor illnesses) and part-time employment.

This “exception” is based on the IRS regulations establishing a “safe harbor” under which an absence of up to two consecutive calendar weeks is treated as a short, temporary absence. However, whether an absence for longer than 2 weeks qualifies as short and temporary is determined on the basis of facts and circumstances.

Likewise, when it comes to FMLA, the IRS does not agree that one’s entire absence under FMLA (which guarantees eligible employees up to 12 weeks of unpaid leave for certain purposes) is appropriate as a temporary absence safe harbor, noting that an absence of 12 weeks “is not a short, temporary absence” within the meaning of the regulations.   See Preamble to Treas. Reg. §§1.21-1 through 1.21-4, 72 Fed. Reg. 45338 (Aug. 14, 2007).

PARTICIPATION

Although the employee may not be eligible to reimburse dependent care expenses while on leave, an employee on LOA may be able to continue to participate in (and make contributions to) a DCAP but any reimbursements from the DCAP will still be subject to the gainfully employed rule and would have to fall within the exception for short, temporary absences.

A DCAP (a non-health benefit) is not subject to FMLA continuation requirements, therefore it would be based on the employer’s policies regarding a leave of absence as to whether they are allowed to continue or revoke their election of “non-health benefits” under the cafeteria plan and how contributions are handled during an unpaid leave.

Employers need to understand the rules regarding DCAPs when an employee is on a leave, and make sure it was “reasonable to believe” that a expense is reimbursable or there may be adverse consequences (e.g. taxes, interest, penalties).  Likewise, if using a third-party administrator, ensure that appropriate measures are being taken too, because in general the employer will ultimately be responsible for such procedures, both under the services agreement with the TPA and under governing law.

 

Not All Cafeteria Plans Are The Same

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, FSALeave a comment

different

A cafeteria plan is a mechanism that offers employees a choice between cash (i.e. their full salary as taxable income) or non-taxable qualified benefits (i.e. allows employees to pay with pre-tax dollars.)  All cafeteria plans are salary reduction plans based on Internal Revenue Code §125, however, there are many plan design variations and not all cafeteria plans are the same.

A Premium Only Plan (POP, also sometimes called a Premium Conversion Plan, PCP) is the simplest form of a cafeteria plan under IRS Code §125. It’s a “premium payment plan” and allows for employers to take certain employee paid premiums for insurance benefits pretax. (e.g. group health, dental, vision)

When you have a health and/or dependent care flexible spending account (FSA), that goes beyond the premium payment plan format because you are permitting employees to reduce their salaries before taxes to reimburse medical/childcare expenses.

In addition to the “rules” under IRS Code §125 found in a POP plan, FSAs are subject to special requirements contained in other IRS regulations.

Health FSAs are subject to requirements under Code §105 (self-insured medical reimbursement plans) Code §106 (the requirements for accident and health plans) and Code §125.

Dependent Care FSAs are subject to requirements under Code §129 (“Dependent care assistance programs”) and various special FSA requirements in Code §125 and IRS regulations. 

Therefore you need a more complex cafeteria plan document (often called a flexible spending plan) than a POP document to be in compliance when offering an FSA.  

The most complex form of a cafeteria plan, sometimes referred to as a “full flex” plan is where an employer provides employees “flex credits” to “spend” on qualified benefits. Depending on the plan design, the employee may be eligible to receive in cash, taxable compensation if the employee doesn’t “spend” all of his flex credits on benefits.

cafeteria

One requirement that every cafeteria plan must meet, is having a written plan document that includes all content specified in the IRS code. e.g. participation rules, election and election change procedures, manner of contributions, etc. 

While it is permissible to have separate cafeteria plan documents. i.e. a POP plan document for the insurance premiums and a separate cafeteria plan document for an FSA, for ease of administration most will include a POP component with in their flexible spending plan document.

According to the 2007 proposed cafeteria plan regulations (Treas. Reg. §1.125-1(c)(6))

(6) Failure to satisfy written plan requirements. If there is no written cafeteria plan, or if the written plan fails to satisfy any of the requirements in this paragraph (c) (including cross-referenced requirements), the plan is not a cafeteria plan and an employee’s election between taxable and nontaxable benefits results in gross income to the employee.

In simple terms, failure to have a written plan document employees would be treated as if they had a taxable benefit (e.g wages) even though they received a nontaxable benefit (e.g. health insurance).

The cafeteria plan document is what allows pretax salary reductions and contains the rules the IRS permits. It’s an important document to have and to understand.

 

 

 

Healthcare FSAs Uniform Coverage Rule – an Employer’s Risk

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, FSA2 Comments

Risk

Under the uniform coverage rule, the full amount an employee elects under a health flexible spending account (health FSA), must be available from the first day of the plan year and must remain available at all times during the coverage period. It requires employers to reimburse expenses up to the full employee health FSA election amount, even if such reimbursements exceed the employee’s year-to-date contributions.

This means an employee can potentially terminate employment having been reimbursed under the health FSA for more than they contributed up to the time of their termination.

EXAMPLES:

  • Tom enrolls for the first time in his employer’s health FSA, electing the full 2019 IRS limit of $2,700 for their April 1, 2019 – March 31, 2020 plan year.  Tom resigns effective April 30, 2019. By the end of that month, he has paid $225 into his health FSA account via salary reductions. On his last day of work (April 30, 2019), Tom submits a claim to be reimbursed for $1,900 of medical expenses that he incurred for his sons recent surgery on April 22, 2019. Tom’s employer must reimburse the full $1,900, even though he only contributed $225 before his employment ended (assuming the expenses are adequately substantiated) and the employer may not recoup the difference. 
  • Mary enrolls in her employer’s calendar year (1/1- 12/31) health FSA, electing the full 2019 IRS limit of $2,700. Mary is paid semimonthly. Throughout the year, Mary submits medical expenses totaling the full amount of $2,700.  Mary resigns effective 11/15, leaving her health FSA overspent (i.e. more was reimbursed than contributed via payroll deduction) by $337.50. Mary’s employer may not withdraw the balance from her last paycheck. 

The uniform coverage rule is part of the risk an employer takes when establishing a health FSA.  The point of the rule is that the employer must bear the risk of loss (i.e. operate like an insurance plan, rather than a mere reimbursement account) in order for the arrangement to qualify as a health FSA.

Although the uniform coverage rule is a risk, in my experience, most employers with health FSAs when looking at the plan year as a whole, do not pay out more in claim reimbursements than they receive in employee contributions. In fact, because of the risk of the  ‘use it or lose it rule’ for employees which generally requires employees forfeit to the employer any unused amounts left in their accounts at the end of the plan year, most employers total contributions exceed total reimbursements for the year.

 

Health savings account (HSA) eligibility is often misunderstood

On By Michelle Turner, MBA, CEBSIn FSA, HRA, HSALeave a comment

question-mark-1722862_960_720

IRS Publication 969 outlines the rules for one to be eligible for an HSA. To be eligible one must:

  1. Be covered under a high deductible health plan (HDHP), on the first day of the month.
  2. Have no other health coverage except what is permitted under “Other health coverage” (also defined in the publication)
  3. Not be enrolled in Medicare.
  4. Not be claimed as a dependent on someone else’s tax return.

Of these four eligibility rules, there is often confusion around item #2. Many do not connect “other health coverage” with health FSAs/HRAs.

Employees enrolling in their employer’s general purpose (i.e. can be used for medical expenses) health FSA or HRA or an employee’s spouse being enrolled in their employer’s health FSA, generally disqualifies an employee from making or receiving HSA contributions for the entire plan year.

Likewise, if there are funds left in an employee’s health FSA at the end of the FSA plan year and there is a:

  • grace period (i.e. up to an additional 2 ½ month period after the FSA plan year ends when expenses may be incurred) an employee is not eligible to make or receive HSA contributions until the first of the month after the grace period is over.
  • carryover provision (i.e. permitting up to $500 of the unspent FSA balance to be used in the next plan year) an employee will be ineligible to make or receive HSA contributions for the entire plan year.

There are ways for a health FSA or HRA to be designed (e.g. post-deductible or limited-purpose) so it’s compatible with an HSA and there are also ways for employers to ensure employees don’t lose HSA eligibility for the following year (e.g. if FSA has a carryover provision and an employee elects an HDHP, the balance automatically transfers into a limited purpose FSA), so it’s important to work with your benefits consultant and FSA administrator to ensure employer-provided benefits don’t become “gotcha’s” for your employees.

Unsubstantiated FSA card transactions

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, FSALeave a comment

credit card

Code §§105 and 125 require the substantiation (e.g., a receipt or bill) of all medical expenses paid or reimbursed from a health flexible spending account (FSA). Generally, substantiation occurs prior to funds being released, however, many FSAs allow access to the funds using a debit/credit card when the service is provided or item purchased.

When the card is swiped, IRS guidance allows certain purchases to be auto-adjudicated (i.e. they do not require further substantiation) while other purchases are allowed to be to be paid at the time of the swipe but require additional information to be submitted to the FSA administrator after-the-fact. This additional information is reviewed and then a determination is made whether the expense was/wasn’t eligible under the plan.

If employees use health FSA funds and the expenses weren’t verified, (i.e. additional information for proper substantiation is not subsequently provided) of if they used the money for an expense that was determined not to be eligible, then certain correction procedures need to be followed to recoup the money for the claims improperly paid. The employer’s FSA plan documents should contain substantiation rules and correction methods.

However, in general per Proposed Treasury Reg. §1.125-6(d)(7) the employer must ask that the employee repay the plan.  If the employee fails to repay the plan, the employer must withhold the amount from the employee’s pay, to the extent allowed by law.  If neither of the aforementioned methods results in full repayment, the employer must apply an offset against properly substantiated claims incurred during the same plan year.  As a last resort and after exhausting other required collection procedures, an employer may include unsubstantiated FSA expenses in an employee’s gross income.  The amount would be included in the year in which it was forgiven (e.g., included in the W-2 for 2019 if an amount owed from 2018 was forgiven in 2019).

However, imputed income should be the exception rather than the rule, and used as a last resort. Per, Chief Counsel Advice 201413006 (Feb. 12, 2014) “Repeated inclusion in income of improper payments suggests that proper substantiation procedures are not in place or that the payments may be a method of cashing out unused FSA amounts.”

Although employers generally are using a TPA for FSA administration and perhaps the contract/agreement with the TPA outlines whose role it is regarding claims substantiation, at the end of the day, it is the employer’s responsibility to ensure the plan is administered correctly.  {The term “administrator” in a cafeteria plan document equals employer. It is not the same as Third Party Administrator. (i.e. an employer can’t pass off the liability to a TPA. If the TPA doesn’t perform, it’s still on the employer.)}

If a plan fails to comply with the substantiation requirements, it’s an “operational failure” and the entire plan will be disqualified, with employees’ elections between taxable and nontaxable benefits resulting in gross income to the employees.

FSA – Grace Period vs. Run Out Period

On By Michelle Turner, MBA, CEBSIn FSALeave a comment

run out grace 1

FSA plan year = 12 month period expenses may be incurred

Grace period = up to an additional 2 ½ month period after the FSA plan year ends when expenses may be incurred, as determined by the plan administrator (i.e. employer)

Run-Out period = time frame after the plan year and/or grace period has ended to submit claims for expenses incurred during the plan year and/or grace period (depending on plan design & determined by plan administrator)

Some plans are set up to have two run-out periods, one that starts at the end of the FSA plan year and a 2nd one that starts at the end of the grace period.

run out grace 2

Not all TPAs systems will accommodate this, rather they only allow the run-out period to start at the end of the FSA plan year. Therefore, if you want employees to have time to submit claims after the grace period ends for expenses incurred during the grace period, you must ensure the run-out period time frame is longer than the grace period.

run out grace 3