California recently passed a law that requires employers to provide notice to their California employees enrolled in an employer-sponsored flexible spending account (FSA) of any deadline to withdraw funds “before the end of the plan year.” The law is unclear as to when and under what circumstances employers are required to send the second notice, as there is no guidance or regulations to interpret the ambiguously written law.  Below we discuss how employers can take action to comply.

Beginning January 1, 2020, employers are required to:

  1. notify California employees who participate in an FSA of any deadline to withdraw funds before the end of the plan year; and
  2. provide notice in two different forms, one of which may be electronic.



If employees do not use the money in their FSA account during the plan year, the funds are forfeited back to the employer (referred to the use-it-or-lose-it rule). California lawmakers were concerned that employers would be less incentivized to remind employees of the use-it-or-lose-it rule because employers could use these funds to offset administrative costs. In response, California passed Assembly Bill No. 1554, which requires employers to provide an additional notice of FSA deadlines to employees.


Notice Requirements

What notice do employers need to send?

Employers must notify California employees who participate in FSAs of any deadline to withdraw funds “before the end of the plan year.” The plain reading of the law suggests that employers must notify employees of any deadline to withdrawal funds mid-year, such as in the case of mid-year termination or loss of eligibility. For example, a health FSA may require employees to submit claims and use any remaining funds within 3 months after a termination of employment.

It has been suggested that the spirit of the law may intend to require employers to send a second notice of any deadline to withdrawal funds, regardless of whether the deadline occurs “before the end of the plan year.” Therefore, it may be best practice for employers to send out two notices of FSA withdrawal deadlines to all California FSA enrollees.


Who do employers need to send the notice to?

Employers must notify California employees who participate in FSAs, including dependent care FSAs, health FSAs, and adoption assistance FSAs.


When do employers need to send the notice?

The law does not specify “when” employers must send the notice. However, employers should work to send the notice within a reasonable amount of time before the deadline to withdraw funds. The most administratively simple method may be to provide the second notice at the beginning of the plan year, or when employees become eligible for the FSA (such as during new hire onboarding).

It is important to note that employers should already be notifying FSA participants of their deadline to withdraw funds when distributing the required FSA Summary Plan Description (SPD) to participants in the beginning of the plan year (which is sometimes done by an employer’s FSA vendor). This new law requires employers to send a separate second notice to California FSA participants.


How can employers provide the notice?

Employers must provide notice to employees in two different forms, one of which may be electronic. Notices may be provided (but are not limited to) by the following methods:

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

If employers are already distributing an FSA SPD through email, employers can satisfy the second notice requirement by notifying employees in person, through a phone call, or by mail. Employers may want to check with their FSA vendor to see how they currently notify their FSA participants of withdrawal deadlines to determine what other forms of notice can be performed. FSA vendors may also provide assistance with the second notice requirement. Some options employers may want to consider could include providing in person written notice in open enrollment materials or in a terminating employee’s off-boarding paperwork.


Are there penalties for not providing the notice?

The bill does not include any specific penalties for employers who fail to provide the notice. However, if a California employee fails to receive this notice and is forced to forfeit unused funds due to a mid-year deadline, the employer may face potential labor code violations.


Employer Action Items:

  • Employers with California employees enrolled in an FSA should notify employees, by two means of communication, of their deadlines to withdraw funds.
  • Employers may want to contact their FSA vendor to determine the best avenue for complying with this additional notice requirement.


Additional Resources:


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Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.