New Notification Requirements for California Flexible Spending Accounts

November 25, 2019

Earlier this fall, the state of California enacted Assembly Bill No. 1554 (AB-1554) into law. AB-1554 amended the California Labor Code to add Section 2810.7 as follows:

(a) An employer shall notify an employee who participates in a flexible spending account, including, but not limited to, a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account, of any deadline to withdraw funds before the end of the plan year. Notice shall be by two different forms, one of which may be electronic.

(b) Notices made pursuant to subdivision (a) may include, but are not limited to the following:

(1)  Electronic mail communication

(2) Telephone communication

(3) Text message notification

(4) Postal mail notification

(5) In-person notification

Section 2810.7 becomes effective January 1, 2020 and imposes new notification requirements to California employers that sponsor a health flexible spending account (FSA).

In general, an FSA participant must exhaust their account balance before the end of the plan year or it is forfeited. FSA participants must be notified of this rule, known as the “use it or lose it rule,” as part of the plan disclosures when they enroll. However, under Section 2810.7, California employers must notify participants of the “use it or lose it rule” before each plan year’s end or at termination. The employer must provide the required notice in at least two different forms including, but not limited to, the list of five options indicated above.  

Chard Snyder is preparing the following items to assist California employers who offer a FSA in remaining compliant:

  • Sample letter provided to the employer, which the employer may supply with OE materials when a participant enrolls in the cafeteria plan
  • Sample email provided to the employer,  which the employer may send to the participant with an electronic copy of the notice at the time of employment termination
  • Notice to refer to the Summary Plan Description (SPD) for details of the “use-it-or-lose-it” deadlines posted to the FSA plan participant portal
  • Messaging on the SPD to the participant regarding how to log into the portal to view plan deadlines

All benefits advisors are encouraged to discuss AB-1554 with their clients who have FSA participants residing in California, and review current FSA service agreements.

Employers providing an FSA to participants residing in California must comply with AB-1554 effective January 1, 2020. Note that Section 2810.7 lacks details on deadlines to provide notices and notice content requirements.  Chard Snyder will provide additional information as it become available.

For more information: Assembly Bill No. 1554 (AB-1554)