On August 10, 2005, Deloitte Center for Health Solutions and the ERISA Industry Committee released the results of their survey on employers' plans to administer the new federal tax rules allowing participants to carry over unused FSA balances for two and a half months into the new year. (Click here to read the article in last month's newsletter explaining how DataPath is responding to these new regulations.)

While half of the employers plan to permit their employees to take advantage of the new regulations for their health care FSAs, only 34% plan to permit the carry-over for dependent care FSAs. The majority of decisions to not include the dependent care expenses were split between the predictability of dependent care expenses (70%) and the fear that the grace period could cause tax problems (67%) resulting from the $5,000 limit on tax-free reimbursement for participants and Form W-2 reporting for employers.

The employers not planning to extend the grace period for either health or dependent care FSAs cited the following reasons:

• 67% were concerned about tracking account balances for two separate plan years.
• 68% were concerned about coordinating grace period with run-out periods.
• 49% said forfeitures had not been a significant problem for FSA participants.
• 42% feared problems educating participants.

The percentage of employers planning to offer the grace period could well increase in the future. Over 25% of the employers were still undecided, but could possibly change their minds in the future because of the following reasons:

• 43% of the undecided were waiting for more Treasury guidance.
• 24% wanted to see how other employers' fared when implementing the grace period.
• 25% could change their minds based on employee requests.

The survey interviewed 318 employers from the private sector and the government during the period of July 18 - 26, 2005. Of the employers interviewed, 61% have at least 2,000 employees, and 19 percent have more than 20,000 employees.

Click here to read the Press Release announcing the Survey results.