IRS Regulations Regarding Experience Gains from Participant Flexible Spending Account Forfeitures
At the conclusion of each plan year, GDI will perform a reconciliation of all participant Flexible Spending Accounts. Funds deposited but not used by employees are classified as “employee forfeited funds” or “experience gains”. These funds are returned to your organization.
The IRS regulations state that “experience gains must be used to defray reasonable administrative expenses or be allocated among *premium payers on a reasonable and uniform basis”.
There are four options to assist you with complying with this rule. You may:
- Use the funds to defray reasonable administrative expenses of the plan.
- Use the funds to reduce the required premiums for all participants in the following plan year (e.g. reduce participants’ FSA payroll withholdings).
- Use the funds to increase the annual coverage amount for all participants in the following plan year.
- Return the funds to all premium payers in the form of taxable income.
*Definition of a Premium Payer: A premium payer is any participant who has premiums paid by salary reduction or employee contribution If you have any questions regarding experience gains; please contact GDI or visit the IRS website at www.irs.gov.
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