Assembly Bill 1554: New California Law Requires Employers to Notify FSA Participants of Withdrawal Deadlines

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California recently passed Assembly Bill No. 1554, requiring employers to notify employees who participate in health care, dependent care, and adoption assistance Flexible Spending Accounts (FSAs) of any deadline to withdraw funds before the end of the plan year.

You can see the official summary here.

This law is broadly written and contains language that may be open to interpretation. We believe employers and third-party administrators would benefit from further regulation or clarification from the California Department of Labor.

In this post, we break down what we currently know about this state-wide legislation, and what details are, for now, open-ended.

Summary of the FSA Bill

Effective January 1, 2020, Assembly Bill 1554 states “[a]n employer shall notify an employee who participates in a flexible spending account, including, but not limited to, a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account, of any deadline to withdraw funds before the end of the plan year.”

This sentence could be interpreted to require notification to all participating employees or only those employees who have a deadline to withdraw funds that occurs before the end of the plan year.

Notification Requirements

The law mandates that the notification be issued in two forms, one of which may be electronic. While it seems likely that this will be interpreted to mean that one form must be non-electronic, it is unclear.

The law is also unclear on when the notification must be made and whether certain existing documents fulfill the requirements of the law. For example, a plan document and/or summary plan description would need to include a written notification to the participant of the deadlines to submit claims for the plan year and in the event of termination of employment or eligibility.

Compliance Requirements

Assembly Bill 1554 is also unclear on which employers are required to comply with this requirement. However, the Labor Code generally applies to employees in California regardless of the domicile of the employer, so it is likely employers would be required to comply with this law for all employees residing in California.

ERISA Considerations

It is important to note that certain plans contemplated by this law may be subject to ERISA. It is possible that ERISA would pre-empt this state law, and that ERISA-governed plans would not have to comply. Such exemption should be discussed with your employee benefits counsel or advisors.

Key Takeaways

Until further regulations or guidance are issued by the California Department of Labor, here are the key takeaways from Assembly Bill 1554. Please consult your legal counsel for advice and information concerning your particular situation before making any decisions.

  • Residence of employee /employer: It is likely that this law applies to employees residing in California regardless of the domicile of the employer. So, if you have employees subject to California Labor law, those employees would also be covered by this law.

  • The regulation is effective January 1, 2020: However, there is no definition of whether the effective date means that the law is required for plan years beginning on or after January 1, plan years that ends on or after that January 1, or for any qualifying event, such as termination, that happens after January 1, 2020.

  • Timing of notifications: There is no timing requirement which specifies when the communications must be made.

  • No exclusions: The law states that “notifications must be made to employees who participate in an FSA.” There is no exclusion for employees who may have already depleted their funds at the time the notification is going to be made.

  • Two forms of notification required: The law states that notifications must be made in two forms, and one form may be electronic, but they don’t explicitly state that the other notification cannot also be electronic.

  • Example forms of communication: Although the law provides examples of permitted notifications, it does not limit the types of communication to only those listed. Additional benefits-related communications we have seen clients use include posters in the workplace, benefits fairs and open enrollment meetings, webinars, benefits booklets and enrollment confirmations. The claim filing deadline is required in the plan document and/or summary plan description.

By |2019-12-03T16:49:55-05:00December 3rd, 2019|Brokers, Employer Posts, FSAs, Legislation, News|
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.