Governor Gavin Newsom recently signed AB 1554 into law, which requires California employers who offer their employees Flexible Spending Accounts (“FSAs”) to provide their workers with two separate notices reminding them that they must use the funds in their FSAs before the end of the plan year or the funds will expire. Currently, federal law only requires a single form of notification or reminder.
What are Flexible Spending Accounts?
FSAs are part of a tax-exempt program that permits employees to pay for unreimbursed expenses, such as costs associated with childcare or health benefits. However, if an employee does not claim all of the money in her FSA account during the plan year, any remaining funds are forfeited to the employer. According to the author of AB 1554, this new legislation is necessary because FSAs are “truly a ‘use it or lose it’ proposition for the employee.”
New Notice Requirements
AB 1554 adds Section 2810.7 to the California Labor Code, effective January 1, 2020. The new Labor Code section requires employers to provide notice to employees by two different forms, one of which may be electronic. Acceptable options for the required notices include: (1) electronic mail communication; (2) telephone communication; (3) text message notification; (4) postal mail notification; and (5) in-person notification.
What Should Employers Do Now?
Employers that self-administer FSAs will likely need to new procedures in 2020 in order to comply with the new law. Employers that contract with third parties to administer their FSA programs should confirm that the third party will be adopting new standard procedures that comply with the new notice requirements.
You can read the full text of AB 1554 here.