Flexible Rollover

"These flexible spending accounts are a good way to help employees meet their health care needs," said Sen. Charles Grassley, R-Iowa. "Unfortunately, employees have to use the money in their accounts by the end of the year, and they lose that money if they don't. That doesn't make any sense. And it's a deterrent to using flexible spending accounts. I hope the Treasury Department will fix this problem so more Americans will feel comfortable setting up these useful accounts."

Last year, for the first time, federal employees were allowed to establish flexible spending accounts, in which they could put aside pre-tax dollars for some expenses which are not covered by standard health insurance, such as co-payments, deductibles, laser eye surgery and dental work. Federal workers are allowed to put aside up to $4,000 for these expenses, and up to $5,000 in dependent care accounts for child care and elder care costs. FSAs have been around in the private sector for a few years.

The American Federation of Government Employees applauded Grassley's effort.

"We appreciate Senator Grassley's efforts because he's right - no federal employee can really afford to risk losing money set aside for health care expenses, and the 'use it or lose it' rules probably do deter people from taking advantage of FSAs," said Jacqueline Simon, AFGE's public policy director.

In a letter to Treasury Secretary John Snow, Grassley said he was not aware of any other "benefits law in which we allow - let alone mandate - that employee dollars set aside for benefit expenses revert back to the employer."

Grassley said the rule is an unfair burden on workers. Tara Bradshaw, a spokeswoman for the Treasury Department, said department officials had received the letter, but had not yet responded to it. Bradshaw also said that the department had a plan in its proposed fiscal 2004 budget to allow flexible spending account holders to carry $500 over into the new year. That change was not approved by Congress, she said.

Grassley's letter acknowledged that lawmakers have taken the issue up in the past, but he called on Treasury officials to see if they can alter the rule administratively.

"Since the 'use it or lose it' rule was created administratively - and was done so through proposed regulations that have never been finalized - it would seem that the Treasury Department does have such authority," Grassley said in his letter. "I have heard from numerous Iowans in my home state and from taxpayers across the country that the 'use it or lose it' rule makes no sense."

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