Treasury Secretary Denies Request To Revise ‘Use-It-or-Lose-It’ Flexible Spending Account Rule
Treasury Department Secretary John Snow has denied a request from Senate Finance Committee Chair Chuck Grassley (R-Iowa) to revise a rule that requires employees at the end of the year to return to their employers any unspent funds in their flexible spending accounts, the Wall Street Journal reports (Herman, Wall Street Journal, 1/5).
FSAs allow employees to allocate a specified amount of their salaries for medical costs not covered by their health insurance. The amount is subtracted from taxable income. However, employees at the end of the year must return to their employers any unspent funds. In August, Grassley in a letter asked Snow to revise the "use-it-or-lose-it" rule. Grassley wrote, "The current rule unjustly enriches employers at the expense of hard-working employees who participate in FSAs." He added, "Modifying this rule would help millions of Americans meet their health care expenses and make the FSA rules more rational" (California Healthline, 8/24/04).
In a letter to Grassley, Snow said that the Treasury Department does not have "sufficient legal authority" to revise the rule. Snow also said that revision of the rule would "impact other important health care priorities," such as health savings accounts. According to department economists, elimination of the rule could result in a 10% reduction in the number of HSAs. In addition, tax analysts have estimated that revision of the rule could cost the Treasury Department billions of dollars in lost tax revenue over the next 10 years. However, Snow said that department officials have begun to seek "creative solutions" to revise the rule, such as "a brief administrative grace period" that would extend the time in which employees must use funds in their FSAs "slightly beyond one year before amounts are forfeited." A Treasury Department spokesperson added that the department "doesn't feel it has the authority to modify the rule in the way that Sen. Grassley has asked without additional legislative action."
Grassley said that he is "glad" Treasury Department officials are "looking at ways to improve" the rule but remains "disappointed that the department seems reluctant to make changes." Grassley added that he does not "understand the argument that the Treasury Department and the IRS don't have the power the change the rule."
He said, "If they wrote it, surely they have the power to change it," adding, "I want to resolve this issue, and I'm looking for the best way to do that. Americans need every possible tool to meet their health care expenses. I hope they don't have to wait another 20 years before someone writes a more common-sense rule" (Wall Street Journal, 1/5).