California Requires Additional Notices for FSAs

The California Legislature recently passed a bill that adds to the required notices that employers must deliver to participants in flexible spending account (FSA) plans, including health, dependent care, and adoption assistance plans.

According to a publication by DLA Piper attorneys, the new law, effective January 1, 2020, provides that all employers sponsoring FSA plans must provide notice to participants of deadlines to withdraw funds. Notice must be given to each participant twice prior to the plan year’s end and in different forms.

The law expressly states that the notices may be made in, and are not limited to, any of the following forms:

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

The attorneys note that for health FSAs, there is a strong possibility that the new law is preempted by the Employee Retirement Income Security Act (ERISA), rendering the new law inapplicable in that respect.  However, they suggest employers consider complying until the federal courts make a final ruling because the law is relatively easy to comply with and is helpful for employees.

However, dependent care and adoption assistance FSAs likely are subject to the California law because ERISA does not apply to these plans generally. The attorneys recommend employers become familiar with the law and implement administrative processes to deliver notices to participants in 2020.

Participants must use the funds in FSAs by a certain time or their savings will be forfeited.