Looking to Change FSA Administrators? A Few Things to Consider Before Making the Switch
Most employers offering benefits to employees also offer a Flexible Spending Account (FSA). In fact, 75% of employers with 200 employees or more offer a FSA to their employees, according to a recent Kaiser Survey.
When offering an FSA, most, if not all, employers choose to have it administered by a third party who specializes in these and other tax-deferred benefit programs. In most cases, these administrators are well-equipped to navigate the numerous IRS regulations that apply.
In the world of benefits administration, it’s well known that there are some great administrators out there but for every good one there seems to be another that is equally as bad. If you’re not getting the most from your FSA administrator and they’re creating more problems than they solve – or if your HR department is spending precious time each week dealing with eligibility and customer service issues – it’s surely costing your organization money in wasted time and resources.
Once you’ve had enough and you’re ready to make the move, make sure you consider the following:
Identify pain points
First, you must be able to articulate where your current administrator is lacking. Typically, this can be measured by the amount of time your HR or benefits team spends on an average day dealing with issues created by errors and omissions made by your administrator. Through a brainstorming session with your benefits team, you should ultimately create a “wish list” of your expectations for a new administrator. As you are vetting administrators, share this list with them and ask that they confirm what can and can’t be accommodated. This helps make the process of narrowing your choices much easier.
Review your current contract provisions
All administrators have similar contracts but no two are alike. Some contracts may include a multi-year PEPM rate guarantee which means that there could be penalties associated with terminating before they’re up for renewal. Additionally, whenever an FSA contract is terminated, adequate notice must be provided in order to avoid penalties. The termination provisions typically require 30, 60 or 90-day notice to avoid any penalties for “late” notice.
Ask for references
Once you have narrowed your search to just a few administrators, ask each of them for the following three types of references:
1. A long-term client that has been with this administrator for several years
- What do they like about them?
- Why do they stay with this administrator?
- What does this administrator do well and what could use improvement?
2. A new client that has recently completed the implementation/takeover process
- What went well during the implementation and what didn’t?
- Did you have enough time for a smooth transition?
- If you could go back in time, what would you change or improve?
3. A former client who has recently terminated services
- Why did they terminate?
- What did this administrator do well and what could use improvement?
- What was the ultimate reason for your termination?
You’ve decided on a new administrator, now it’s time to sort out the following:
Who is processing run-out claims?
Most plans allow for a run-out period in which claims incurred in the prior plan year may still be filed within 90 days after the close of the plan year. This can be done by the prior administrator or the new one. The decision is yours, but the deciding factor may be based on which administrator charges the least for this service. However, you should really ask yourself, “Pricing aside, which vendor will perform this service with the least amount of disruption to my employees?”
To allow for a smooth transition, your new administrator will need a file containing the FSA balances for all members that will be rolling over unused FSA dollars into the new plan year. This typically applies to parking and transit balances as these roll over from month to month. However, if your new administrator is administering the run-out for the previous year’s health FSA claims, they will need these takeover balances as well.
Making sure you are passing over accurate takeover balances to the new administrator is essential for a clean transition. To do this, it typically requires a “blackout period” which is a specified length of time (usually one week) in which the debit cards are turned off and the current administrator ceases claims processing. This blackout period allows all claims filed prior to the beginning of the blackout period to be processed and prohibits new claims from being received. This way, at the end of the blackout period you can be sure that all pended or outstanding claims have been processed and members’ remaining balances are accurate prior to being transferred to the new administrator.
Communication to employees
The concept of blackout periods and takeover balances may be very foreign to your members so it’s best to send clear written communication on this process which includes the last date to submit any claims and the date in which debit cards will be deactivated. It’s also a good idea to hold webinars or employee education sessions to review this process with employees so that they can ask questions and have their concerns addressed.
Once these steps above have been completed, you’re ready to transfer balances to your new administrator who will save you time and money by administering your plan in a way that meets you needs but more importantly, the needs of your employees.
If you're wondering whether your current FSA administrator is the right fit, or if you've already decided to switch and are looking for help with a smooth transition process, we're here to help. Contact the 'A' Team to learn more!
- What's the Difference Between a FSA and HSA?
- Human Resources E-Book
- Total Cost of Employee Benefits Calculator
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