Half of FSA holders forfeited funds to their employers: EBRI report

Americans contributed more to Flexible Spending Accounts but many forfeited funds to their employers under the ‘use it or lose it’ rule.

A new analysis of FSAs by the Employee Benefit Research Institute looked at 3.2 million accounts and how workers use them, research that it says is lacking. The year marked the end of temporary Covid-era rules that allowed employers to modify their FSA plans to lift caps on rollover amounts, and a return to pre-2020 forfeiture rules.

The research found that the average FSA contribution in 2022 was $1,291 and 85% of accountholders took a distribution during the year with an average amount of $1,323. There was no significant variation of these figures conditional on whether or not the account had a grace-period feature, allowed rollovers or was a ‘use-it-or-lose-it’ FSA.

EBRI says that average contributions have increased by 9% since it launched its FSA Database in 2019, but in 2022 only 4% of accountholders contributed the statutory maximum ($2,850 for the year). This could be because people are not aware of the limits or do not keep on top of changing contributions elections each year.

“While FSAs are a common workplace benefit, there is little empirical evidence about how much accountholders contribute, withdraw and forfeit. Shining a light on these accounts can help employers foster optimal usage of FSAs, which can help workers improve their overall financial wellness.  Pretax contributions to FSAs help workers stretch dollars further than they otherwise could, enabling them to divert dollars toward other financial needs, such as emergency savings, retirement or other savings goals. This is of particular importance given recent evidence that employers are increasingly concerned with helping workers manage high costs of living and health care costs.” said Jake Spiegel, research associate, Health and Wealth Benefits Research, EBRI. 

Half of accountholders (52%) forfeited funds in 2022, with the average amount of $441. This was an increase from 44% and an average $369 in 2019.  Younger accountholders were more likely to forfeit funds, made smaller contributions, and took smaller distributions on average. The researchers note that the larger share of forfeiture may have been due to accountholders being caught out by the end of the Covid-era rules.

The full report Vital Statistics on Flexible Spending Accounts, 2022: Forfeitures on the Rise is available on the EBRI website.