COMP News – Flexible spending account holders have forfeited an estimated $7.2 billion in 2019 and 2020. These forfeits are caused by employees who contribute but fail to spend the balance of their account before the annual deadline.

More than 40% of workers with FSAs forfeited at least part of their account contributions in recent years, according to new data that the nonprofit Employee Benefit Research Institute (EBRI) shared with Money. On average, they lost between $339 and $408 a year by not using up all of their FSA money by the spending deadline. All that forfeited FSA money isn’t tracked closely by the federal government, and it’s likely those billions of forfeited dollars ended up going right back into employers’ pockets.

These forfeits are six times higher than the FSA industry had previously estimated.

FSAs allow millions of employees to use pre-tax dollars for approved health-related expenses, including copays, prescriptions and over-the-counter medicines. The catch: If you enroll, IRS rules require you to spend the money you contribute into your account by an annual deadline. In other words, if you don’t use it, you lose it: the money is forfeited.

The “use-it-or-lose-it” design has long been considered a weakness of FSA plans, but it’s been hard, until now, to get a thorough assessment on just how much money workers were losing. In fact, Money’s estimate — that workers have forfeited at least $3 billion annually in recent years — is six times higher than older, more limited estimates from the FSA industry.

While some employers return what would be forfeited money to employees or use it for additional benefits in the following year, experts suspect that these options are uncommon. Rather, it’s suspected that many employers simply keep the forfeited HSA money.

In other words, workers can kiss their forfeited contributions goodbye. Companies that offer FSAs are allowed to pocket the forfeited money. Spiegel says it’s likely employers are putting at least some of that money toward the costs of administering the FSA benefits.

But there’s really no telling how employers use the leftover money because neither the IRS nor the Labor Department keeps track of it, leaving billions of dollars unaccounted for.

To read more about employees losing FSA contributions, click here.

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