Senator Says Workers Shouldn’t Have to Forfeit Flexible Savings Account Balances When Laid Off from a Job or Due to COVID-19 Crisis

WASHINGTON, D.C. [8/3/20]–U.S. Senator Tina Smith (D-Minn.)–a member of the Senate Banking Committee–introduced two pieces of legislation to prevent workers from losing their health care and childcare savings when they lose a job, have a surgery cancelled, or a child care center is closed. The measures are a direct response to letters Sen. Smith received from constituents who had lost hundreds or thousands of dollars in employer-based savings accounts following layoffs earlier this year. 

Federal Savings Accounts (FSAs) are an optional benefit that employers may offer to their employees. It allows workers to set aside money on a tax-advantaged basis to pay for certain out-of-pocket expenses. But the coronavirus (COVID-19) pandemic has made it difficult for many workers to use their health and dependent FSA benefits. It's also made many Americans lose their jobs. And unfortunately, under current law, workers can be forced to forfeit their unused FSA funds if they lose their job in a layoff or other event–even if the job loss is no fault of the worker. In addition, for workers remaining on the job, unused funds can be forfeited at year end. 

Sen. Smith's Fair FSAs Act and the Dependent Care Expense Relief Act would ensure that workers who lose a job can have their savings refunded to them, and provide flexibility on the use of flexible spending arrangement funds in light of the COVID-19 pandemic.      

“No one should lose the money they’ve set aside for medical expenses and childcare simply because they’ve been laid off,” said Sen. Smith. “And they shouldn’t lose their savings because of a cancelled surgery or closed childcare provider either.  We should be doing all that we can to keep money in the pockets of workers, especially during this unprecedented public health and economic crisis. My legislation will help people who lost their jobs due to COVID-19 related economic downfall. It will also help workers with health FSAs who haven't spent down their balances due to COVID-19 canceling elective procedures and limiting health care out-of-pocket costs. Lastly, it will assist workers with dependent care FSAs who haven't been spending down their balances on preschools, childcare providers or afterschool programs due to the virus."

 The Fair FSAs Act of 2020 would:

  • Require plans to reimburse individuals their health FSA balance when they leave their job or their COBRA coverage expires, and
  • Require plans to roll over existing FSA balances to the next plan year when requested by a participant due to COVID-19 related reasons.

The Dependent Care Expense Relief Act would:

  • Require plans to allow workers to spend down their account balances through the end of the plan year if they are separated from employment;
  • Require plans to rollover remaining balances to 2021 if they are unspent due to COVID-19; and
  • Allow the IRS to expand the list of allowable expenses to include dependent care expenses specific to the current public health emergency. For example, this could include expenses such as internet expenses, tutoring, virtual camps or other resources that can be used at home to teach and entertain children while parents are working (such as books and educational websites).

“Families across the state are struggling with health and financial uncertainty. As a major part of family budgets, child care is at the center of both struggles for many. Senator Smith’s Dependent Care FSA Account roll over bill gives them important additional options to make decisions that prioritize their safety and maximize their financial stability.” – Debra Fitzpatrick, Director of Policy and Legislative Affairs, Children’s Defense Fund MN

"The Dependent Care FSA bill is a benefit to families in the current COVID related community.  Families budget for childcare and expenses for a year in advance with their FSA.  The current situation with unemployment, stay at home and school closures have caused new and significant hurdles for families and their budgets. Many families were laid off, required to work from home, furloughed, or worked nontraditional hours. Some childcare centers closed for periods of time. Childcare was also free to many essential workers at the school-age level for many months. These situations impacted families outside of their control.  The cost of childcare became very inconsistent for many families.  Being able to carry over and access the FSA dollars that they worked for will allow families to budget in uncertain times." – Ann Riebel, Director, Winona Area Public Schools Community Education

The Minnesota Child Care Association fully supports the extension of 2020 Dependent Care FSA benefits, as the impact of COVID-19 on employment also impacted the child care needs of many families. FSA’s are “use it or lose it” accounts, but parents weren’t able to plan for the pandemic. Allowing this year’s funds to roll over into 2021 is a solution to hold families harmless and provide necessary flexibility and financial support.” – Chad Dunkley and Clare Sanford, New Horizon Academy

“Allowing recipients to roll over unused dependent care FSA benefits is both a practical and compassionate action in these uncertain and difficult times. It’s one of the essential ways Congress can help keep a family’s economic security afloat while helping our nation’s economy recover, too.” – Jane Leonard, President, Growth & Justice.

The Dependent Care Expense Relief Act is endorsed by New Horizon Academy, Minnesota Child Care Association board, Marshall Area Chamber of Commerce, Indigenous Visioning, First Children’s Finance, Minnesota Head Start Association, Inc. and First Children’s Finance.

You can access a summary of the Fair FSAs Act of 2020 here and a summary of the Dependent Care Expense Relief Act here