What is the “use it or lose it” rule for FSAs?
A. A cafeteria plan may not allow employees to defer compensation that is earned in one year to the next. Therefore, employees may not carry over unused elective contributions or plan benefits from one plan year to another. This is called the “use it or lose it” rule. At the end of the plan year, unused contributions are forfeited by the employee. Typically this rarely occurs as employees are quite skilled at estimating their contributions and managing their expenses in order to avoid forfeiture.
