Employers that have employees residing in California are now required by AB 1554 to provide notification in two different forms to employees about deadlines for withdrawing funds from flexible spending accounts (“FSAs”). One of the forms of notification may be electronic. Examples of permissible notification forms include: e-mail, telephone, text message, mail, or in-person. The notice requirement purports to apply to all FSAs, including dependent care FSAs, health care FSAs, and adoption assistance FSAs. Virtually all other aspects of implementing the law are left open to interpretation.
Open Questions About the New Notice Requirement
- Claims Deadlines Subject to the Law: One uncertainty is whether the notice requirement applies only if the claim submission deadline occurs before the end of the plan year or whether it applies to all claim submission deadlines.
If the text of the rule is read literally to require notice only if the deadline to submit claims occurs before the end of the plan year, the notice requirement is most likely to be triggered only in the event of mid-year employment terminations. This is because most FSAs provide a claims submission deadline that occurs at least 30 to 60 days after the end of the plan year. However, legislative history and statements by the author of the bill, Assemblywoman Gonzalez, adopt a broader interpretation of the law that would apply the notice requirement to any claims submission deadline whether or not the claim deadline is before the end of the plan year.
- ERISA Preemption: The law is likely preempted with respect to health care FSAs that are subject to ERISA. Dependent care FSAs and adoption assistance FSAs are not subject to ERISA. Health care FSAs that are governmental or church plans are not subject to ERISA.
- Timing of notice: The law leaves open when a plan must provide the required notices.
- Effective date: The law is effective January 1, 2020, but does not indicate whether it is effective for plan years beginning on or after January 1, 2020, for plan years ending on or before January 1, 2020, or for claim submission deadlines occurring on or after January 1, 2020.
- Form of notice: The law requires that notice be provided “by two different forms, one of which may be electronic.” However, it is unclear if employers may use two electronic forms, for example, e-mail and intranet.
- Target: It is unclear whether the notice could be distributed widely to all employees or whether it must be sent only to employees with an FSA. The law also does not address whether notice is still required for employees who have exhausted their FSA balance before the notice is distributed.
Consequences of Non-Compliance
The new notice requirement does not include specific penalties for non-compliance nor is it clear that employees have a private right of action. However, it seems that non-compliance could be enforced through a private attorneys general action.
Additional guidance would be welcome. In the meantime, if you are an employer, consider taking the following steps:
- Employees in California. Identify whether you have any employees in California. This notice requirement applies to employees residing in California regardless of whether your company is headquartered or domiciled in California.
- Not Preempted. Determine whether you have any FSAs that are not subject to ERISA.
- Claim Deadlines. Identify claim submission deadlines both for employees employed through the end of the plan year and employees who terminate early.
- Existing Notice. Review when and how you communicate claim submission deadlines to employees. To comply with the new law, the notice must be given in two different forms.