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Workers are losing out on hundreds of dollars in flexible spending account money.
A new report by the Employee Benefit Research Institute analyzed more than 3.2 million flexible spending accounts in 2022. It found, while workers are contributing more to these accounts, about half of accounts are not using the funds.
FSAs are typically part of a wider benefits package, and workers can elect to contribute a certain amount of pre-tax dollars into those accounts to pay for health care — or separately, child-care expenses — during the plan period. But if they don’t use the funds, they are forfeited back to the employer.
The average forfeiture? $441.
Jake Spiegel, research associate of health and wealth benefits research at EBRI, said there is not a lot of empirical evidence on how workers use — or don't use — their FSAs, despite how common a benefit it is. And using FSAs more efficiently can help employees over the long term.
“While FSAs are a common workplace benefit, there is little empirical evidence about how much account holders contribute, withdraw and forfeit," Spiegel said. "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," Spiegel added. "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. Forfeiting funds back to employers can potentially run counter to this goal.”
He said the EBRI’s analysis shows a need for so-called “decision supports” for workers that can guide them through how much to contribute to FSAs and help them reduce forfeitures.
Overall, the average FSA contribution was $1,291 in 2022, according to the study, up from $1,179 in 2019. And the age of the FSA holder strongly correlated with contributions, with younger workers contributing less and older workers contributing more. Workers under 25 had an average FSA contribution of $716 in 2022, according to the study, about half that of workers 65 and older, who had an average $1,556 distribution.
The amount of dollars forfeited has only grown in recent years, too, according to the report. The average forfeiture was about $369 in 2019, before the pandemic, and has only grown since, despite pandemic-era legislation that allowed workers to spend that money over longer periods or roll money into the next year.
FSAs continue to be a popular benefit offered by employers but have declined in popularity in recent years. About 62% of human-resources experts surveyed by the Society for Human Resource Managers, an HR association, said their company offered them — down for the second year in a row.
Part of the reason could be the growing use of high-deductible health plans, which come with their own health savings account that is incompatible with FSAs, according to a SHRM report on employer benefits in 2023.
FSAs part of a broader conversation around workplace benefits
More employers today are revisiting their approach to benefits and the gap between what many companies think their workers want and what they actually want widens.
Companies are also focusing more on their mental-health programs as worker anxieties surge. Many employees also want their employer's health plans to cover the increasingly popular class of weight-loss drugs, including Ozempic.
Meanwhile, more companies are considering flexible schedules, including a shift to a four-day workweek, in a bid to attract talent.
According to the results of a recent survey by The Business Journals of more than 1,600 small-business owners, executives and other decision makers, 20% of respondents said they already were offering a four-day workweek, and an additional 13% said they are considering it.
Those results track with responses from executives at larger businesses, with about 30% of CEOs surveyed as part of KPMG’s 2024 U.S. CEO Outlook Pulse Survey saying they were considering new, organization-wide work schedules such as a four-day workweek.
Some companies currently using four-day workweeks do so seasonally. Used-car marketplace Carfax Inc., for example, deploys four-day workweeks during the summer months, a strategy that has garnered it workplace-award recognition. A number of accounting firms also offer four-day workweeks during the summer. Popular crowdfunding website Kickstarter also has switched to a four-day workweek after a successful pilot.
