25 October 2019

New California Law Imposes FSA Notice Requirements

Beginning next year, a new California law will require employers to notify employees of any deadlines to submit flexible spending account (FSA) claims before the end of the plan year.

New Required Notice

The new law applies to medical and dependent care FSAs.  Most FSAs allow employees to submit claims for eligible expenses incurred during the plan year for a run out period (typically of 60 or 90 days) after the plan year ends.  The new law doesn’t apply in that situation.  Rather, it only applies where the employer has adopted a special rule to require claims incurred during the plan year to be submitted before the end of the plan year.  The most common example of such a special rule would be where an employee terminates employment/participation during the plan year and must submit any incurred claims right away (for example, within 60 or 90 days of termination).  The new law also would apply if the employer terminated its FSA plan mid-year (for example, upon the sale of its business) and required employees to submit claims within 60 or 90 days of termination.

If the notice applies, employees must be notified in two different forms including email, phone, text, mail or in-person.  The law takes effect January 1, 2020 but doesn’t further specify when the notices must be provided.  Presumably, one of the notices could be provided by distributing the FSA SPD by email, mail or in-person.

Scope of Law

It appears that the new notice is only required to be furnished to an employer’s California FSA participants.  The federal law ERISA preempts (take precedence over) the California law with respect to ERISA benefits.  Medical FSAs are an ERISA benefit if sponsored by an employer other than a governmental or church employer.  Dependent care FSAs are not subject to ERISA.   If an employer’s medical FSA is subject to ERISA it could take the position that the California law doesn’t apply.  However, it’s unclear if  California regulators will agree.

Action Plan

Employers with FSA plans should:

–Determine whether its FSA plan contains any deadlines to submit claims before the end of the plan year; and
–If so, the employer should identify its California FSA participants and make plans to satisfy the new notice requirement.

Since the law is brief and doesn’t include much detail, it is possible California regulators may issue guidance to assist employers with implementation.  Employers who are subject to the new law should keep an eye out for additional information.