By: HUB’s EB Compliance Team

Last month, Governor Newsom signed into law Assembly Bill 1554 (AB 1554). The law requires California employers that sponsor a flexible spending account, such as a Health Care Flexible Spending Account (“HCFSA” or “Health FSA”), a Dependent Care Flexible Spending Account (“DCAP” or “Dependent Care FSA”) and/or an Adoption Assistance Flexible Spending Account, to notify plan participants, at least twice before the end of a plan year, of the deadline to submit expenses for reimbursement.

The available means of communicating this deadline are:

  • In-person;
  • Telephonically;
  • By e-mail;
  • Text messaging; and,
  • Via Postal Mail.

The new notification requirements take effect on January 1, 2020.

A Few Considerations

This new law is extremely lean on details. However, employers should be mindful of the following:

  • Though not explicitly stated in the law, presumably the distribution of the flexible spending account Summary Plan Description/benefit plan summary will satisfy the “first” notice.
    • In light of the above, employers only need to select a second method of communication, prior to the end of the plan year, to satisfy the second notification requirement.
  • It is unknown if an employer that electronically distributes its flexible spending account Summary Plan Description/benefit plan summary, and also chooses to notify participants via e-mail of the deadline to file expenses, will in-fact be in-compliance with the “two separate notifications” element of the law. As a practical matter, we believe that employers should chose a different method for the second notice than the method by which the flexible spending account SPD/benefit summary was made available to employees (e.g., if that document was USPS mailed, then the second notice should be in verbal, text message, or e-mail).
  • Some summaries of this bill say employers only have to give notice if the deadline is before the end of the plan year. Read that way, this notification requirement would only apply to a small subset of participants (for example, employees who terminate employment during the plan year and have to submit expenses within 60 days after termination). This confusion persists because the law uses a single, long, ambiguous sentence to describe the requirement. Specifically, in the law, it is not clear whether the phrase “before the end of the plan year” modifies the word “notice” or “deadline.” However, the legislative history from when the bill was introduced is clear that the notices are to be given before the end of the flexible spending account plan year. Additionally, based on the statements of the sponsor of the bill, the motivating factor for this notice requirement is the “use-it-or-lose-it” rule that applies to flexible spending accounts. Given that history, it seems the better reading of the statute is that the notice is required before the end of the plan year, regardless of the deadline to submit expenses.

Next Steps for Employers

  • Employers that hold interactive open enrollment meetings appear to already be complying with this law (i.e., taken together, the distribution of the FSA/Adoption Assistance/Section 125 Plan materials (or sending a link to those materials) and the subsequent/concurrent mention of the deadline during the meeting would appear to satisfy the requirements) because it does not appear that the timing of the two notices has to be distinct (i.e., it can be simultaneous, so long as the methods are different).
  • Conversely, employers that hold non-interactive open enrollments may wish to consider how to best get the “second” notice to employees. The employer is free to choose whichever method for the second notice it desires, so long as said method is different from the first method.
    • Clients in this position may wish to contact their flexible spending account administrator to see if the program administrator can provide assistance with complying with this new notification requirement.

More information on the bill can be found here.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.