Workers lose billions annually on FSA accounts and companies need to do better

The end of the year is fast approaching, and the flexible savings accounts (FSAs) for many workers are about to expire. Those healthcare funds have a “use it or lose it” rule, meaning employees who fail to deplete their contributions before a specific deadline—often the end of the calendar year—will lose the money they put in.

Between 44% and 48% of workers with FSA funds forfeited at least part of their contributions between 2019 and 2020, according to an analysis from the Employee Benefits Research Institute (EBRI). That accounts for an average of $339 to $408 lost per employee annually. And U.S. FSA forfeitures total at least $3 billion per year, according to an analysis from Money published last year. 

The end-of-year deadline for many FSA plans has been known to send people scrambling to spend as much as $2,000 on New Year’s Eve to avoid losing funds. But even then, the expense process can be cumbersome, as workers have to remember to save their receipts and then take the time to submit a request for each expense. 

“Today’s fast-paced life is the biggest culprit in workers forgetting to track and use FSA dollars before the deadlines,” says Ruth Hunt, principal for engagement and communication at management consulting firm Gallagher. Workers may engage in informative sessions about FSAs during open enrollment earlier in the year, but “by the end of the year, especially calendar years, it’s easy to simply forget where the account stands. The calendar page turns too quickly,” she says.

As workers continue to feel the burden of inflation and higher living costs, using up their FSA money could help ease some financial strains. According to Gallagher’s upcoming Buck’s 2024 Wellbeing and Voluntary Benefits survey, only 66% of employees polled feel financially healthy, and 92% wanted more resources to support their financial well-being.

But employers can do several things to help employees fully use their FSA funds. One is adopting a carry-over or grace period policy, both of which offer an extension on fund deadlines, though carry-over provisions only allow a certain amount to remain after the deadline.

The most important tool employers can leverage, however, is a multi-pronged communication and engagement strategy, says Sara Taylor, senior director of employee spending accounts at Willis Towers Watson. This messaging should remind employees of spending or expense deadlines, any use-it-or-lose-it provisions, and what purchases qualify as an FSA expense, such as medical copays, dental visits, or prescription glasses. The federal CARES Act expanded the list of qualified medical expenses in 2020, meaning products including menstrual care items, over-the-counter medications, and sunscreen are FSA eligible. Some online retailers, such as The FSA Store, also sell FSA-eligible products, making it easier for account holders to find qualified items. 

When it comes to successful communication, companies can send general announcements to their entire employee base, and work with their benefits administrator to send targeted missives to employees with remaining FSA balances. It is also important to explain the difference between FSAs, health savings accounts, and health reimbursement arrangements. For example, HSA funds don’t expire.

“Your employees typically don’t have this all down like a benefits expert does,” says Taylor. “They need help to understand this, they need you as an employer to remind them about how this works, deadlines, what they can use this money on so that they’re realizing the value of the benefits provided to them.”

Paige McGlauflin
paige.mcglauflin@fortune.com
@paidion

Reporter's Notebook

The most compelling data, quotes, and insights from the field.

While the U.S. continued to see robust hiring throughout 2023—with 199,000 jobs added in November—some companies are outpacing others when it comes to snatching up new talent.

Bath & Body Works, Tesla, and Papa Johns were among the 15 fastest-hiring companies between August and October, according to a new analysis from Indeed. All of these companies hired at least 1.5 times faster than other companies in the top 1,000 for job postings on the platform. Signet Jewelers was the top company, hiring 2.29 times faster.

Around the Table

A round-up of the most important HR headlines.

- China-based paper maker Guangdong Dongpo Paper is substituting year-end bonuses for monthly bonuses contingent on how far employees jog. Bloomberg

- Young people in China are leaving the workforce and turning towards spirituality as lucrative jobs disappear and the government imposes on their lives. Wall Street Journal

- Accenture CEO Julie Sweet says most companies aren’t ready to integrate AI into their functions, partly because they don’t have the safety guidelines set up yet to make sure the outputs are accurate and non-proprietary. Financial Times

- Small businesses are finding it harder and harder to provide their employees with benefits as costs surge. MarketWatch

Watercooler

Everything you need to know from Fortune.

Automania. Walmart is automating dozens of their distribution centers to keep up with holiday orders and building new ones for the future. —Haleluya Hadero, Anne D’Innocenzio, AP

Four-day foray. The U.K. government is threatening to withhold funding from a local government that refuses to end the four-day workweek experiment it’s been conducting since January. —Ryan Hogg

No bonuses. Mikael Sorensen, U.K. CEO of Handelsbanken, partly credits the European bank’s success with not handing out bonuses to employees. “Many people believe that the only way to motivate your staff is to give bonuses,” he tells Fortune. “We think it’s the worst thing to do. Human nature is what drives people.” —Peter Vanham