Keenan Briefings


AB 1554: Requires Two Messages to Employees Regarding Flexible Spending Account Withdrawal Deadlines

February 05, 2020

On August 30, 2019, Governor Gavin Newsom of California enacted AB 1554. While existing California law requires all employers to notify employees of information relating to employment and benefits, this new bill requires employers to notify employees, who participate in flexible spending accounts and work in California, of any deadlines applicable to withdrawing funds before the end of the plan year.

Generally, flexible benefits plans are written to accommodate a "run-out" period, after the formal end of the plan year, for participants to turn in claims incurred during the plan year. Some plans may allow a 2.5 month extended period of coverage (grace period), after the end of the plan year, in which to incur expenses during the current year and use left-over funds from the previous plan year. Additionally, plans may allow participants to carry over up to $500 from a previous plan year to the current year from their healthcare flexible spending accounts (subject to whatever limitations the plan administrator imposes to protect their plan, their spend and perhaps how their next year's Health Savings Accounts operate.)

The deadline to withdraw funds from a flexible spending account may be different according to the benefits selected. For instance, the dependent care portion of the plan may have a run-out period for turning in claims incurred in the previous plan year, while the healthcare portion may allow for a grace period or carry over, and thus a separate run-out period. These factors should be taken into consideration when creating and distributing employee notices including, whether the FSA is for dependent care, healthcare or adoption assistance.

The Notice needs to be delivered to participants before the plan's year end advising them of all deadlines to withdraw funds. The Notice also must be provided in two different forms, one of which may be electronic.

Notices may be provided as outlined below, but are not limited to the following:

  • Electronic mail communication
  • Telephone communication
  • Text message notification
  • Postal mail notification
  • In-person notification

When Does This Take Effect?

For plans that end anytime in 2020, up to and including December 31, 2020, the employer is required to provide the two (2) notices to California employees prior to their plan's year end.

For more information regarding AB 1554, please click on the following links:

CA Assembly Bill No. 1554 (FSA/DCAP - 2 medium reminders in 2020)

Keenan California Legislative Summary 2018-2019 End of Session Briefing

For more information, please contact your Keenan Account Manager.

Keenan & Associates is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.