Federal workers who participate in the Federal Flexible Spending Account Program (FSAFEDS) will now be able to rollover up to $500 from one year to the next in unspent funds from their limited expense and health care flexible spending accounts (FSA) thanks to a recent decision by the Office of Personnel Management.

FSAFEDS allows workers to set aside as much as $2,500 of their pay, before taxes, to pay for out-of-pocket medical expenses. For many years, however, workers were barred from carrying funds over from year to year. Previously, federal workers had a 2-1/2 month grace period when they could be reimbursed for eligible expenses from the previous year’s balance.

“Health care and limited expense flexible spending accounts (FSAs) will no longer have a grace period; instead, qualifying participants will be able to carry over up to $500 of unused funds to the next plan year,” wrote John O’Brien, OPM’s director of health and insurance, in a release. “Dependent care FSAs will still have a grace period and will not have carryover to the next plan year.”

OPM also lowered the minimum annual election for all three types of FSAs from $250 to $100.

In October 2013, the Treasury Department issued new rules giving U.S. employers the go-ahead to allow workers to rollover as much as $500 in unused spends.

“The IRS restricts carryover to health care FSAs that are not using a grace period,” O’Brien wrote. “Programs must eliminate the grace period for their health care FSAs before they can implement carryover.”

There will be no grace period during the first 2-1/2 months for employees with health care and limited expense health care (LEX) FSAs. Instead, these employees will be able to incur expenses for reimbursement from Jan. 1 through Dec. 31, 2015, from their 2015 account. Then, they’ll be able to submit reimbursement claims up to April 30, 2016, for the 2015 account.

FSAFEDS participants who are eligible will still have the 2-1/2 month grace period at the beginning of 2015. They will have until March 15, 2015, “to incur eligible expenses for reimbursement” from the previous year’s account. In order to take advantage of the grace period, employees must be employed by a participating agency that is making allotments from the employee’s pay through Dec. 31, 2014. The deadline for submiting reimbursement claims from 2014 accounts is April 30, 2015.

“Participants can carry over up to $500 of unused 2015 health care or LEX elections to 2016,” O’Brien wrote. “Carryover funds can be used for reimbursement of eligible expenses incurred in 2016. Carryover funds can also be used for reimbursement of eligible expenses incurred in 2015 until the claims submission deadline of April 30, 2016.”

Four D.C.-area senators — Ben Cardin (D-Md.), Barbara Mikulski (D-Md.), Mark Warner (D-Va.) and Tim Kaine (D-Va.) — praised OPM’s decision.

“Allowing Federal workers to rollover some FSA funds into the next year just makes sense. ‘Use-it-or-lose-it’ was a wasteful practice that I have fought to end,” said Cardin, who is a member of the Senate Finance Committee.

Cardin and Sen. Michael Enzi (R-Wyo.) introduced the Medical FSA Improvement Act of 2013 (S. 966) in May 2013 to reform FSA laws. The Treasury Department issued a ruling last November based on their bill. Treasury gave private sector employers the go ahead to let employees roll over up to $500 in FSA funds to the next year or to establish a grace period for rolling over funds to the following year.

Cardin, along with the entire Democratic caucus, followed up Treasury’s decision with a letter last December to OPM Director Katherine Archuleta, asking for OPM to make the changes it ended up announcing on Aug. 27.

In the December letter, the lawmakers said nearly 10 percent of the employees participating in FSAFEDS forfeited an average of $392 annually because they weren’t able to rollover the funds.

“I’m pleased that OPM has answered our call to give federal workers in Virginia and across the country peace of mind that they can rollover their unspent FSA savings from year to year,” said Kaine, who is a member of the Senate Budget Committee. “Our nation’s hard-working public servants should not have to fear losing the unspent funds they have worked so hard to earn.”

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