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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.

©2023 MICHAEL BEST & FRIEDRICH LLPNational Law Review, Volume VI, Number 300

About this Author

Jorge Leon, Michael Best Law Firm, Labor and Employee Benefits Attorney
Partner, Diversity and Inclusion Committee Chair

Plan sponsors, administrators, fiduciaries, and third-party recordkeepers turn to Jorge for strategic counsel on designing, establishing, and maintaining retirement plans. Clients laud his responsiveness and meticulous approach to matters ranging from plan establishment and design to government investigations and inquiries, ongoing compliance and qualification, ERISA litigation, and mergers and acquisitions.

Before joining Michael Best, Jorge practiced for 15 years at a premiere Chicago-based AmLaw 100 firm, where he was the lead partner...

Martin Tierney, Michael Best Law Firm, Employee Benefits Attorney

Clients turn to Martin for his tenacious problem-solving approach to all areas of employee benefits law. He is particularly valued for his track record of untangling and simplifying complex executive compensation matters. Clients seek his counsel with respect to retirement and executive compensation plan design, ongoing compliance with tax and regulatory requirements, and benefits issues in mergers and acquisitions.

Martin has spoken frequently on employee and retirement benefits topics. He has written more than a dozen articles for the...

Charles Stevens, Michael Best Law Firm, Labor and Employment Attorney

A persuasive advocate, Charlie vigorously defends employers and benefit plans in courts and other forums. He excels at assessing and fixing problems that arise with employee benefit programs and providing a strategically driven approach to benefits compliance and risk management planning.

As exclusive employee benefits counsel to many nationwide employers, Charlie’s practice focus extends to:

  • Counseling on Affordable Care Act (ACA) compliance and strategic planning, particularly with respect to contingent...

Kirk Pelikan, Michael Best Law Firm, Labor and Employment Attorney

Kirk’s practice focuses on legal issues related to all aspects of the employment cycle, from hiring through termination and severance. Substantially experienced in both benefits and employment law, Kirk is well positioned to help clients respond to the opportunities, vulnerabilities and benefit ramifications of particular employment decisions.

Kirk’s focus includes:

  • Developing and maintaining effective compliance strategies related to defined benefit plans, defined contribution plans, executive...