CA Law Requires Employers to Provide Notices to FSA Participants

A new California law requires that employers provide two different forms of notification of the deadline to withdraw funds (submit claims) to employees participating in flexible spending accounts.   

The Actual Law – Just 96 Words

Section 2810.7 is added to the Labor Code, to read:

(a) An employer shall notify an employee who participates in a flexible spending account, including, but not limited to, a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account, of any deadline to withdraw funds before the end of the plan year. Notice shall be by two different forms, one of which may be electronic.

(b) Notices made pursuant to subdivision (a) may include, but are not limited to the following:

(1) Electronic mail communication.

(2) Telephone communication.

(3) Text message notification.

(4) Postal mail notification.

(5) In-person notification.

Current Vita Process

Vita’s current process includes sending two emailed reminders of the claims incurred deadline, as well as two additional reminders of the claim submission deadline. Previously, paper reminders were only mailed to those plan participants who did not have an email address on file, or if the email address on file was invalid. To comply with this new law, employers will be required to provide at least two notices of different methods to each employee. Vita is in the process of amending our procedures to accommodate full compliance with the law.  Unfortunately, additional charges for paper mailings will need to be passed through to employers. 

ERISA Preemption

As ERISA preempts state law, it’s likely this new requirement doesn’t affect Health FSAs. We are currently working out details with the sponsoring legislator and committee to confirm this assumption. That said, Dependent Care FSAs and Adoption Assistance Programs are not typically ERISA plans and thus are subject to this new California law.

Effective Date and Timing

This law goes into effect January 1, 2020.  While the law doesn’t specify the plan years to which it applies, the conservative approach will be to operate under this new law for any deadline occurring after the effective date. This means that notification should be sent even for 2019 Plan Years because claims filing deadlines fall in 2020. Based on this, Vita will mail a paper notification to all Dependent Care FSA and Adoption Assistance Program participants. This is in addition to the emailed notices described above.

Administrative Complexities

There is a concern regarding employees who do not have an email address on file, as they would only receive the mailed notice. As a rule, it is assumed that telephone outreach (as allowed by the bill) would be prohibitively expensive, and the concept of documenting compliance for in-person notification is rather untenable. In many cases this will leave employers and administrators unable to comply since two forms of communication would not be available. We are continuing to work with the sponsoring legislator and committee to clarify answers to the administrative challenges of the bill. Specifically, we have proposed amendments to the bill to allow for communicating deadlines via member web portals and/or workplace posters as methods to satisfy the requirement.

Stay Tuned

Both the legal realities and the administrative processes necessary to comply with this new law are still developing. Vita is working on both and will keep you informed as further information unfolds. 

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