New FSA Limit for 2017 May Necessitate Annual Open Enrollment Materials Update
On October 25, 2016, the IRS released Revenue Procedure 2016-55, which officially raised the health Flexible Spending Account (FSA) salary reduction contribution limit to $2,600 for taxable years beginning in 2017. This $50 increase over the prior maximum, along with a number of other inflation adjustments, was previously suspected but unconfirmed.
As a quick refresher, prior to the Affordable Care Act (ACA), higher health FSA salary reduction contribution limitations were quite common, with many employers using a $5,000 or higher annual limit in their plan documents. The ACA initially limited these annual contributions to $2,500, a figure which has since been adjusted twice.
Some health FSAs incorporate a hard dollar maximum figure in their plan documents; in those cases, a plan amendment is necessary to increase the dollar limit for future years if the sponsoring employer desires to allow employees the highest possible pre-tax savings opportunity. Other plans incorporate the maximum limit allowed by law, which, for plan years beginning in 2017, will now be $2,600.
With annual open enrollment underway or imminent for most plan sponsors, HR and benefits teams should confirm whether amendments to plans or enrollment systems and/or communications are necessary in order to address this update. It might not be too late to alert the printer to change the $2,550 figure to $2,600 in open enrollment materials.