10 FSA design tips

Flexible spending accounts (FSAs) allow your employees to use pre-tax dollars to cover eligible out-of-pocket healthcare expenses, providing a tax-efficient way to manage medical costs and helping you and your employees save money. But how can you effectively communicate and offer FSAs to your employees? Let’s explore how to offer FSAs at your company, ensuring both compliance and maximum employee engagement. And don’t forget to  check out our newest Benefits Buzz podcast episode with Zac Johnson, executive sales director at WEX, below.

What are the different FSAs you can offer?

Here are the four most common types of FSAs:

Medical FSA: Allows employees to use pre-tax dollars to cover eligible medical expenses,dental, and vision expenses.

Limited medical FSA: Similar to a medical FSA, but can be paired with high-deductible health plans (HDHPs) and health savings accounts (HSAs), covering dental and vision expenses.

Combination FSA: A limited FSA that converts into a medical FSA once the IRS deductible is met.

Dependent care FSA: Lets employees use pre-tax funds for qualified dependent care expenses, including daycare, preschool, and after-school care. Only employees with a legitimate tax-dependent status can use FSAs to cover dependent care expenses.

Bridging the gap

Educating your employees about FSAs is crucial for their effective use. As Zac Johnson explained in our most recent episode of Benefits Buzz, “When I think of education, I’m thinking of webinars whether it’s live or recorded, one page handouts, short videos, email campaigns, or even pop-ups in the mobile app.” There are many way to educate your employees on FSAs:

• Highlight savings: Emphasize that FSAs offer significant tax savings on money they’re already spending on eligible expenses. 
• Resource availability: Provide educational materials like webinars, one-page handouts, and short videos. 
• Open enrollment communication: During open enrollment, ensure that information about FSAs is easily accessible and understandable.

Compliance and regulations

Compliance with IRS regulations is also crucial when offering FSAs. But what are the key terms you have to be wary of when offering FSAs?

• Substantiation: Ensure every expense is eligible by choosing a vendor with a robust compliance team. 
• Non-discrimination testing: Regularly conduct testing to avoid favoring highly compensated employees. 
• Record keeping: Maintain accurate records to demonstrate compliance in the event of an audit.

How to choose the right vendor

Selecting the right vendor is critical for smooth administration and employee satisfaction. We know that having trust and confidence in your vendor is important, but what are the key qualities you should be looking for?

• Integration: Ensure the vendor can integrate with your benefits administration and payroll systems. A key question to ask is, can this vendor integrate our files?
• Service and support: Choose a vendor that offers excellent customer service and takes on employee education. 
• Technology: Choose a vendor that provides updated technology such as a mobile app and easy-to-use debit cards.

Plan design

Designing an FSA plan that meets your employees’ needs while remaining compliant involves several key steps:

• Account options: Offer a variety of FSA options to cater to different needs, such as the FSA plans mentioned previously (medical, limited medical, combination, and dependent care). 
• Contribution limits: Clearly communicate the IRS-mandated contribution limits to employees. 
• Carryover or grace period: Decide whether to offer a carryover option or a grace period for unused funds. It is highly recommended to offer one of these options to employees as this maximizes flexibility for employees. 

Emerging tech and trends

With new emerging tech the FSA game is continuously changing. Here are some of the top emerging tech and trends to look out for in 2024: 

• Mobile apps: Vendors should offer robust mobile apps for easy account management. 
• Smart wallet integration: Encourage the use of digital wallets for FSA debit cards. 
• Real-time notifications: Look for vendors that provide real-time notifications for transactions and account balances.

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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers. 

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