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New California Law for FSA

California recently enacted Assembly Bill No .1554, which requires an employer to notify employees of any deadline to withdraw funds from a flexible spending account (FSA) before the end of the plan year. The law applies to health care FSAs and dependent care FSAs. The law says:


1. An 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. Notice shall be by two different forms, one of which may be electronic.


2. Notices may include, but are not limited to the following: 

  • Electronic mail communication
  • Telephone communication
  • Text message notification
  • Postal mail notification
  • In-person notification


This new law is effective January 1, 2020. The requirement appears to be aimed at notifying employees whose FSA coverage terminates during the year, thereby triggering a shortened runout period based on such mid-year terminations. However, the law does not indicate when the notification should be made, other than requiring the notice to be in two different forms. The notice requirement is an employer requirement, because the employer sponsors the FSA plan. 


The withdrawal of funds refers to employees submitting claims for FSA-eligible expenses which occurred when they had an active FSA plan. The FSA plans offered by Zenefits provide plan participants with a runout period of 90 days following plan termination to submit claims. The plan documents and related summaries in Zenefits already provides notice of this 90 run-out period and could be considered as one form of notice.  


Employers can choose their own mode of communication for the second notice. The law does not appear to require an individualized notice and 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, and the claim filing deadline is required in the plan document and/or summary plan description as described above.  Please note that for telephone or text message, the federal Telephone Consumer Protection Act may require advance consent.


The law itself does not set out a specific penalty for failure to provide the notice. Presumably the largest potential downside will be an employee who later asks for a refund of unspent and forfeited funds if the appropriate notice was not provided.


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.


Until further regulations or guidance are issued by the California Department of Labor, please consult your legal counsel for advice and information concerning your particular situation before making any decisions.  






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