September 21, 2020

Volume X, Number 265

September 18, 2020

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New California Law Requires Additional Flexible Spending Account Notices

Under a California law that took effect on January 1, 2020, employers will have to provide extra notices to California employees enrolled in flexible spending accounts (FSAs) explaining the “use it or lose it” federal tax rules that apply to those FSAs.

AB 1554, which applies to health, dependent care, and adoption assistance FSAs, adds Section 2810.7 to the California Labor Code. The new law requires employers to notify FSA participants “of any deadline to withdraw funds before the end of the plan year.” Though this could be read to apply only to mid-year deadlines to withdraw funds, such as in the case of termination of employment, the limited legislative history suggests that the author was actually concerned more generally with funds remaining in an account at year-end being forfeited.

The law requires employers to provide notice in two different forms, one of which may be electronic. The law includes a nonexclusive list of notice options, including email, telephone, text message, regular mail, and in person.

The law does not specify the timing or the content of the notices. Employers typically provide paper or electronic enrollment materials and benefits materials such as summary plan descriptions that specify the deadlines to withdraw funds and the fact that unused funds will be forfeited.

Employers are likely to challenge the statute as preempted by the Employee Retirement Income Security Act of 1974 (ERISA), at least with respect to health FSAs, which are governed by ERISA.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume X, Number 7


About this Author

Timothy Stanton, Ogletree Daikins Law Firm, Data Privacy and Employment Attorney

Tim Stanton is an energetic advocate for and trusted advisor to inside counsel and benefits and HR executives.

His clients include: retailers and wholesalers; insurance, banking and financial services firms; and food companies and manufacturers, as well as colleges and universities.

Tim actively counsels clients on the roller coaster ride that is national health care reform, as well as on ERISA fiduciary duties, health information privacy and security, retiree medical age discrimination, and consumer-directed health...

Christopher W. Olmsted, Ogletree Deakins, Employment Law Compliance Attorney, Retaliation Claims Lawyer,

Christopher Olmsted is a shareholder in the firm's San Diego office.

Mr. Olmsted helps businesses avoid employment-related legal claims by providing California employment law compliance advice. He also defends employers in a variety of litigation matters. Mr. Olmsted's employment law compliance and litigation experience includes: California FEHA and Title VII discrimination, harassment and retaliation claims; wrongful termination claims; wage and hour compliance and defense of claims and labor agency audits; California CFRA, federal FMLA and other leaves of absences; misappropriation of trade secrets, non-competition and non-disclosure agreements; California and federal ADA accommodation; gender pay equity audits and litigation; terminations, reductions in force and severance agreements; independent contractor misclassification claims; employment agreements and policies; labor Commissioner claims (Department of Industrial Relations, Division of Labor Standards Enforcement claims), EDD and Unemployment Insurance claims.