On August 30, 2019, Gov. Newsome signed AB 1554 into law. The new law is effective January 1, 2020 and requires employers to provide notice to health FSA, dependent care FSA, and adoption assistance account participants if the deadline to submit claims is earlier than the end of the plan year.
The notice is not required to be distributed to all participants — only those whose coverage terminates mid-plan year and who have to submit their claims before the end of the plan year. In other words, they have an accelerated run-out period. For example, let’s say that under an employer’s plan design, participants who terminate employment mid-year have 90 days from termination to submit claims. That employer would need to send the notice to those participants. Alternatively, if the FSA permits mid-year terminated employees to submit claims all the way through the end of the plan year the notice would not apply to them.
The law itself is only three sentences. As of now, there is no model notice or language. The only requirement is for employers to notify the affected participants of the appropriate deadline to submit claims. Best practice would be to add the plan name, contact information for questions, and instructions for submitting claims to the notice.
Importantly, employers are required to provide the notice in two different forms. One may be electronic (email), but the second must be telephonic, by text message, through postal mail, or in person.
Lastly, there is some question as to whether the law would be preempted by federal law since a health FSA is governed by ERISA. However, this is not clear and employers should plan on complying in 2020 until further guidance is provided.
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