Within the past week the IRS released Revenue Procedure 2016-55 indicating there will be a $50 increase in the health flexible spending arrangement (FSA) salary reduction contribution limit for 2017 to $2,600. But - what does this mean for employees and employers?

In the good old days, health FSA salary reduction contributions could be very high. I was able to sock away $5,000 - $10,000 a year. The ACA ended that gravy train in 2013 by limiting employee contributions at $2,500 per plan year. This amount was indexed by inflation and now is up to $2,600 for 2017.

The New FSA Limit

This $2,600 limit applies only to employee salary reduction contributions. Employer contributions of up to $500 are also permitted (for a total of $3,100 combined) for the health FSA to maintain excepted benefit status. In addition, only those participants in the group health plan should be permitted to participate in the FSA. Non-excepted health FSAs generally cannot comply with the ACA market reform mandates.

Please make sure your cafeteria (also known as a Section 125 plan) plan document automatically incorporates these health FSA cost-of-living increases or it will have to be amended. Now would also be a good time to confirm whether your cafeteria plan contains a grace period or allows for the $500 carryover or contains neither and this should be conveyed to all participants.

What about HSAs?

Another increase in a limit for 2017 is for health savings accounts (HSA). The HSA self only contribution limit increases to $3,400 for 2017.  Like FSAs, this increase is rather nominal ($50) but it is an increase. The family coverage contribution limit remains at $6,750 again in 2017.  If you have one or more high deductible health plans with the corresponding HSA accounts, please make sure your employees are aware of this change.